[civic-sense]

I finally bought a car that equals 100% of my yearly gross because this will be the last car I would buy as a salaried person.

That means I wasn't as successful as I wanted to be but I still wanted a taste of some of the finest things I yearned for all my life.

When I am jobless I won't feel comfortable spending that kind of money on a car, so better got one when I am still drawing a salary.

[5kmiles]

Originally Posted by civic-sense

I finally bought a car that equals 100% of my yearly gross because this will be the last car I would buy as a salaried person.

That means I wasn't as successful as I wanted to be but I still wanted a taste of some of the finest things I yearned for all my life.

When I am jobless I won't feel comfortable spending that kind of money on a car, so better got one when I am still drawing a salary.

Anything and everything for true passion. Cheers

[sandygordon]

My EMI for home loan is 30% of my gross income. Wanted to upgrade / downgrade by paying cash. Chose the polo GT TSI as I need not take a loan if I sell the S cross. Wanted a reliable automatic. Long waiting periods and small size of the vw polo put me off from the purchase. I did not find any other automatic in this price range tempting. Provisionally have decided to continue my left foot exercise on the clutch for atleast another 2 years.

I will be having a hard time to upgrade, because I am driving a car that gives me D segment space, suspension and seats with a B/C segment engine at C2 price. I am so used to the space and comfort.

[adi.mariner]

I am a salaried individual and would never buy a car on Loan. I have only taken a Loan to buy my current apartment. The car I bought in 2011 is still going strong and there is no reason to change as such. But the itch to change/upgrade has started and I would be looking at Used options. My usage is very limited and so it doesn't make sense to spend a hefty amount on a Car.

[Bluehead]

Originally Posted by GTO

Thanks for starting this thread, Bluehead! As someone who is very financially conservative (but quite a spendthrift too...on the right things ), I agree with many of your points. We have several related threads on the topic, but this one can stay independent as it's a good refresher of some golden rules + has turned into a fantastic discussion.

Wanted to just chip in and say, you MUST consider the pre-owned route if you have even a little knowledge about cars. That'll straight away save you a whopping 50%. As an example, I bought a 3-year old Civic with ~7000 km and a year of extended warranty left, for 8.10 lakhs (price of new at the time was 16 lakhs).



I'd personally never be comfortable spending 50% of my gross on a car. My current comfort level is 10% or less. However, back in the early days of my career, I might have gone to 25%. But never, ever half my gross.



. Especially with today's cars that are so good. And if not 10 years, own it for at least 8 - 9 years.

Keep, swap or upgrade? (ARTICLE: YOUR 5 year old car : Keep, Upgrade or Swap?)

Or do a lateral upgrade (ARTICLE: The Beauty of Lateral Upgrades (Getting MORE CAR for LESS $$$)).

Thanks GTO . Couple of divergent thoughts:

1. Great point on pre-owned cars. But having observed the Indian customer from close quarters as a Banker over two decades , for some category of folks, going the Pre-owned route is a big NO.
The reasons are many: from irrational reasons like superstitions, emotional discomfort in using a pre-owned car, anxious about what could be the reason behind the previous owner's decision on selling the car- Did it bring bad luck , ill health, business losses etc ? to the more rational reasons like not getting the car of your choice (brand/model / color / condition)

2. I will make a guess that a good chunk of the middle class salaried category folks below 40 years fall below the 30 lacs p.a gross salary. At 10% or even 20% of the Gross Salary your universe of car choices dramatically reduces. But I get the drift of your message.

To fellow bhpians, Absolutely loved the variant thoughts and experiences shared in this thread. Just to reiterate, what i mentioned are called "thumb rules". They are generally accepted wisdom and is not a shoe that fits all sizes. So you have to take these rules as a general guideline and adapt it to your personal situation.

[ps: The word "thumb rules" had its origin in the 16th century and was used to denote the usage of thumb to measure the distance between two objects on a table or for checking the alignment between two things (by holding the thumb in the eye line.
Over time every field had thumb rules including the field of personal finances. I have shared only the ones pertaining to automobiles, there are many more useful ones in the world of finance)]

[dicor]

Thank you Bluehead. These rules are good and very helpful. Although many petrolheads would ignrore these rules.

When it comes to automobiles, I don't think twice. In fact there was a time, when my monthly fuel expenses alone were 10% of my monthly salary + Insurance, EMI, depreciation, maintenance etc.

But again, everyone has their own parameters and certainly lot of people will be benefited from your post.

I want to ask you one thing. Is it wiser to take car on loan? Or if one can afford, can he buy by making entire payment upfront?

[Pancham]

Originally Posted by GTO

I'd personally never be comfortable spending 50% of my gross on a car. My current comfort level is 10% or less. However, back in the early days of my career, I might have gone to 25%. But never, ever half my gross.

Just to clarify = what I mean is to not spend more than 10% of your income on a car (including EMIs, insurance etc).

I also feel the the percentage of your annual income you spend on a car is relative to your annual income. Someone earning 3 Crores a year might not want to spend 50% on a car (~~ INR 1.5 Crores on car). Similarly, someone earning 30L a year which is quite decent in India, may not want to spend only 10% on car (~~INR 3 Lakhs). So, the more the income, the % gradually declines.

Also, your age and overall situation (whether you are staying in your hometown or on rent in a different city) matters. Here I am 29 with relatively less responsibilities. I was ready to buy an Octavia. Just last week I have been asked to transfer to Delhi. Now I am thinking of getting a used Honda City or a Santro because my monthly expenses just doubled. So there are a zillion factors working all the time.

[NKB]

Originally Posted by SRM

The two thumb rules that I prudently follow are:

1. Buy a car only in cash (don't like paying interest on a depreciating asset). It helpe me buy something that I can really afford and if I don't have enough for the car I want, then I work towards saving for it and then buy it after some time.

I have similar strategy and have accumulating funds for my first car. I have improved upon this strategy and now I have booked Nexon XZ+ DT petrol with below strategy:

1. I have funds to buy the car but instead of buying it in cash I am going for loan.

2. The fund which I have, I am putting it in FD ( using my father's account). That gives me higher rate of interest and no tax on interest as my father is senior citizen. The FD is equal to the loan period

3. As per my calculation, after the end of my loan repayment, the interest earned on FD will be more than the interest I will pay on loan.

4. At the end of the FD I will get back the money. Gifting between father and son is not taxable under Income Tax

[Nav-i-gator]

Consider me a typical Middle class person:

I started working when I was 26, with a OK'iesh salary for a fresher. Bought a Bike (Apache RTR 160) 3rd month into the job, which was worth about my 3 months' take home salary. So far so good.

Then, went on to splurge on small things that give you joy - latest mobile phones, Camera, ipods etc. Hardly saved anything (ironically, first few years of job is the time when you can save the most. But, Ahh! the youth!). In the hindsight, I have no regrets though. There is a time for everything.

Got married around 29, used up whatever savings that we had (my wife was also working then) for marriage and honeymoon. We started on a clean slate again, but the combined salary was good, so started saving a bit more (still less than what we could/should have). Bought a second hand car (again less than a third of our combined yearly take home).

But - took a home loan for booking an apartment. Now, I would believe that in near future, this would prove to be a good decision/investment; but the point is - this decision literally costed us a few years of good life, at a time when one can enjoy their life the most. My wife left the job to become a full time homemaker after we became parent. We were (and still are) paying EMI as well as Rent (which in Gurgaon is huge). The expenses kept on increasing and there was a time when we were spending every penny of our salary and saving none.

I'm an eternal optimist though; always feel (in money matters) that Money is always in short supply. No matter how much you earn, you will always have some thing to own, which will be far away from your means. What I did was, to cover for the worst (started to invest just 3 years back, as my salary grew) . A term insurance, basic family floater medical cover for family, small SIP investments in Mutual funds (increasing the SIP as my income grew), few small investments here and there in PPF. But I still have quite low liquidity in terms of cash in hand/bank.

Point is (and not only about cars), I really don't live with regrets and try not to over-complicate life. I would rather be happy today than being prudent and secure for years to come. You never know when is your last day. I never made a bad decision, maybe bad timing for those decisions, but definitely never gone so overboard that I could never bring finances back to manageable.

Our old workhorse is now going to be 10 years next year (It's a Chevy Beat), and is at about 1 Lakh mark now. Apart from consistent suspension issues (one out of 4 seems to be always giving up), there is nothing much wrong with it. But, this is the time for a bit of an upgrade.

Very little cash in hand means that I can do only the bare minimum down payment, rest would be a loan. And I'm pretty sure I would go on breaking every thumb rule to get hold of what I would drool over for a long time. It never hurt to spend money on something you love. If it does, you need to love more (not save more).

Given a choice, YOLO is any day better than living an average life and building a big corpus for old age when money is probably the last thing that you would want.

[NYMEX]

Originally Posted by jezza

While I get that the general opinion is to avoid loans and EMIs, if the money one saves by not paying cash down can be better invested with a higher return compared to the interest rate of the loan, it may be wise to go for the loan instead.

After affordability is established, this is the way to go.

"The rich invest in time, the poor invest in money"

I bought a C 200 Edition C in January 2018. The financial engineering was as follows:
1. money from sale of CRV - Rs. 15.00 lakhs
2. cash paid - Rs. 3.00 lakhs
3. Loan (5 yrs) - Rs. 30 lakhs

Simultaneously an amount of Rs. 38 lakhs was invested in quality equities with investment horizon of 5 years. By then the corpus is at least likely to double, and re-sale value the car will be around Rs. 10 lakhs. Hence effectively taking the maximum cost equal to the interest payout of Rs. 6.50 lakhs over 5 years. Also, if the corpus terminal value becomes over Rs. 83 lakhs, then effectively the car did not eat into my capital.

[karan85]

I am definitely an outlier here. I bought a Swift Vxi back when its price was twice my gross and 3 years ago I wanted to buy a Jetta which after discounts was about 90% of my gross, got a Polo GT Tsi instead.

I am of the opinion that though these thumb rules are helpful, a lot depends on one's situation and specifically things like - if you own a house, what percentage of your gross are you able to invest after buying the car, do you have any other major liabilities, do you have an emergency fund with decent amount etc.

Don't mean to go off topic but as a few folks have mentioned it- for me buying a house is never investment option. The returns are too low and in my head it doesn't justify investing a big amount.

[jetsetgo08]

Originally Posted by V.Narayan

One of the most sensible statements on this entire thread. Folks who have worked for less than 20 years have only seen, by and large, Campa Cola times. Those of us who started earlier or run businesses have experienced ups and downs and do not usually assume assurance of income and increments.

Sir, I have always admired your posts, and have followed each and every post mentioned in the other thread, what car @ what salary. Could you please elaborate on what the 'Campa cola times' meant?

[V.Narayan]

Originally Posted by jetsetgo08

Sir, I have always admired your posts, and have followed each and every post mentioned in the other thread, what car @ what salary. Could you please elaborate on what the 'Campa cola times' meant?

Long long ago when Coke was banished from India it got replaced by three Indian cola drinks - Thums Up, Campa Cola and 77. Campa was the drink in North India. It's advertisment Jingle went ....Camps Cola times.... So oldie goodies like me remember those days when to treat a girl to a Campa Cola was the height of luxury.:-)

[tarik.arora]

Reading all comments on this thread makes me believe that car loan penetration would be pretty low. May be just 15-20%, but, is that true? I don't think so. May be people on this forum are more privileged than an average Joe (big assumption) and thus can afford to buy a x-lac rupee car which equals just 0.1-0.5x of their annual income.

For many, these rules are just on paper when buying their dream car. Blame it on their ignorance, financial situation, or financial decision making but the fact remains that not many people can follow these rules. My take is, if you are comfortable spending that kind of money on a car, then go-ahead and enjoy. I know people with a 15-20 lac CTC roaming around in Fortuner's of the world just because they do not have any responsibility.

[Ragavsr]

I am planning to spend atleast 2 times the yearly stipend I would be receiving on a new car.

All the rules while sane don't apply in all circumstances.

1. This is the first new car I will be buying. The earlier one I bought was used.

2. No commitments/ responsibilities.

3. I plan to keep the car as my primary car for atleast 10 years, more probably as a second car.

4. My income after I graduate will be atleast 2X in 3 years.