[anjan_c2007]

Indian Scenario:
Salary is OK as a rule for the car/automobile we buy.Other things that can be considered are value of assets one owns (immovable property and so on),the way one thinks as far as spending money goes ( some crorepatis travel in Maruti 800's), the age group to which a person belongs and so on.
Like when anyone is young he or she has lots of ambitions. The F1, Ferrai and Lambo posters in their rooms say it all. But many do not have the moolah to spend and fulfil the ambitions. He owns a Yamaha FZ 16.
When one ages he or she becomes more stable in most cases with a fat income but the urge decreases. Maybe he or she does not buy a Ferrari but settles for some car in the B or C segment.
This happens in the case of the salaried class more often.
Parking constraints too are a matter of concern for many.

[blue_pulsar]

Originally Posted by nandans2005

Hey star,

I absolutely second your opinion on this.

I would like to add that one should also reduce the amount of EMi one has to pay for the loan taken for the car. I mean that one should try & make more of the down payment, if possible upto about 80% of the total cost of the car.

80% as downpayment? Means if I'm buying a 5lac car, pay 4lac in cash and 1 lac loan? I mean, if you can pay 4 lacs off hand, you might be able to pay the remaining 1 lac too isn't it?

I'd rather say, if I'm buying a 5lac car, 2 lac downpayment and 3 lac loan. Keep 50k for accessories.

[n.devdath]

Interesting reading. Let me pitch in what I feel on this. Like many have said, there is no point in having your car EMI exceeding 20% of your monthly income. And, yes, it is a good practice to make at least 20-30% as a DP for your car.

Having said the above, I feel that in one's younger years where a person would usually not have a home loan, a family to support and other medical liabilities, it would be better to buy a better car than what thumb rules suggest so that one doesn't end up getting bored of it too soon and then not only end up selling it but also going for a bigger car when the liabilities too are higher.

To quote my own example, I could have gone for a Swift or an Ikon but I purchased a Scorpio with the firm will that I will not change it for at least the next 10 years. Today, an year down the line, I m happy I took the desicion when I see most of my managers an others getting bored of their hatches and upgrading within 3 years of buying their first car.

[NetfreakBombay]

Originally Posted by Gansan

IMO if a person is buying a car out of savings / windfall this kind of thumb rule can't apply. Going by this logic, should a person earning ~ 3 lacs PA not buy a car at all?

Or he/she should buy a used car under 1 lakh. A 6 - 7 yer old Alto / 800 still have 3 - 4 more years in it.

[Gansan]

Originally Posted by KPS

Frankly no unless he has a back up like his financial strong parents. For a salaried person the monthly income is fixed. If you miss one EMI say due the hospitalization then it is very difficult to pay two EMI's in the next month considering your income is fixed.

Please quote my post in it's entirety my friend! I said cash purchase, not emi.

Originally Posted by NetfreakBombay

Or he/she should buy a used car under 1 lakh. A 6 - 7 yer old Alto / 800 still have 3 - 4 more years in it.

Chances of buying a reasonably good car under one lac are extremely minimal. Even if it is possible, it's value after another 3 - 4 years will be zilch. Can this person change it every 3 - 4 years?

If he buys it for cash, any of the sub 5 lac cars will be good for the next 10 years.

[NetfreakBombay]

10 Year Old 800 or Alto is still worth 30 - 40k. He can buy a car for 1 lakh, this is probably his first car, run it for 3 - 4 years and use that car to trade in while buying next car.

This will ensure that emergency fund (Cash in hand) does not deplete.

OTOH, If he has enough Cash to buy 5 lakh car and still has enough cash for Emergency fund, then its a different scenario.

[e1t1bet]

It depends on a lot of things. Monthly fixed costs, variable costs etc. For eg.someone who is single can obviously pay more than someone with 2 kids.
The rule of thumb for me is:

(1) It is preferable to save at least 20% of one's monthly salary.
(2) One should ensure that one's savings don't go below 10%.
(2) Under no circumstances should monthly savings go below 5%.

Of course, occasional aberrations are acceptable.

[aseem]

This is how I personally feel having started this thread and now brought a car myself....

Critierias:

1. Yearly Income
2. Age Group
3. Cars Available in given price range
4. Family Wealth

Income 4-8 Lakhs
Cars: Swift, Santro, i20, i10, Figo and the likes
Younger Buyer: More expensive car
Older Buyer: More cheaper car as they have more liabilities

Income 8-14 Lakhs
Cars: Swift, i20, Fiesta, ANHC, Polo and the likes
Younger Buyer: Can perhaps fit ANHC in his salary
Older buyers: Should settle for cheaper more practical car

Income 14-20 Lakhs
Cars: ANHC, Vento, i20, the likes
Younger Buyer: Again rule applies generally can be more agressive

Income 20-25 Lakhs
Cars: ANHC, Vento, Civic, Cruze etc
Younger Buyer: D Segment Car
Mature Buyer: Should settle for C+ segment

30 = Mature
20-27 = Younger
40+ = Old :(

[aditya101]

When is an expensive car really expensive? I think the question has to be answered with the backdrop of the fact that a car is a depreciating asset with a limited life. To stretch and buy an expensive house on loan will ultimately reward on the long term.

My thumb rule is: Car price <= 1 year post-tax salary

With this rule the person can afford the down payment, EMI and running costs. For 80% of salaried class people, anything more will be indulgence. I am sure there are 20% folks for whom this rule does not apply.

Compare this to a home loan, my thumb rule is House Price <= 7 years post tax salary.

[Gansan]

Originally Posted by NetfreakBombay

OTOH, If he has enough Cash to buy 5 lakh car and still has enough cash for Emergency fund, then its a different scenario.

That is what I have been trying to say. The title of this thread should be "Buying a car on EMI; What car @ what salary?". I request the mods to kindly change it.

[OmThoke]

What about the self-employed people

Of course, majority of the car buyers seeking a car loan are salaried, but it's always more tricky for the self-employed. They have high risk, and then lot of business obligations, so even if someone earns over a lakh every month, there could be lots of IFs and BUTs, which could actually put him in a big dilemma.

Such people can afford an Accord, an A4 and even a 5-series, but 6 months down the line, they might find it difficult to pay even a Cruze EMI, that's why most of them end up buying only C segment cars in cash.

A bitter reality indeed is that many of them end up using their black money on cash car purchases in wife/son/relative's name, and don't really take loans!

And, of course getting a loan is VERY TOUGH, especially if you're young and self-employed ! (ask me how tough it has been getting a home loan, a super-bike loan, and then the s80 loan!)

As for the salaried, putting MAX of 30% of monthly net take-home salary towards EMI is a safe bet - not more than that! I'd rather say 20-25% at the most, because you have to pay insurance premiums, occasional repair/mod charges, fuel charges, and lot of other things too!

[shankar.balan]

Originally Posted by OmThoke

What about the self-employed people

As for the salaried, putting MAX of 30% of monthly net take-home salary towards EMI is a safe bet - not more than that! I'd rather say 20-25% at the most, because you have to pay insurance premiums, occasional repair/mod charges, fuel charges, and lot of other things too!

I would rather suggest that one should put no more than 12 to 15% of your monthly take home pay cheque on a car loan EMI. This largely means the one should make a bigger downpayment and hence reduce the loan size and hence the EMI impact. If one can easily manage with one vehicle, then one should not buy and own two, however tempting the thought may be. Remember that these are depreciating assets in the end and they do need to be run and maintained and looked after and loved and all this costs money.

For a house loan one may go up to the levels suggested by you - 25%. More than that will be dangerous.

Think on it, if the car + house is going to take away a total of 40% or even 50% of your nett take home paycheque, will you be able to afford all the other general expenses and other fripperies that you and your family will tend to desire?

Remember, inflation is constantly rising. All costs are going up. Is there going to be enough for that occasional holiday and other expenses which might arise, like medical, general savings, good food, clothing, childrens education etc?

Personally, I would prefer to buy a car that I can afford to buy and maintain comfortably. Anything over that which causes a big stretch in the home finances is rank idiocy. Don't forget that all these big expensive cars also cost much more than the standard ones to acquire, run and maintain, over a period of time.
Specifically parts costs and replacement costs are very high indeed when compared with the standard brands.

For those seeking status, quality and perhaps size and top specifications on a tight budget, I suggest you refer to that lovely informative thread on lateral upgrades - keeping, upgrading or swapping your 5 year old car.

Much as I appreciate the fact that I own one car that I like a lot, I sincerely wish we had a half decent, well connected, safe and timely, dependable public transport system because I would happily use that during the week and save the car for the weekend enjoyment.
Bangalore should have its Metro connect up the suburbs first. That will take the max pressure off the roads.

[ampere]

Originally Posted by shankar.balan

Think on it, if the car + house is going to take away a total of 40% or even 50% of your nett take home paycheque, will you be able to afford all the other general expenses and other fripperies that you and your family will tend to desire?

+1 .
This is the reason, I also think one should not spend more than 12-15% EMI on cars. To add to Shankar on top of that 40-50% car & home loan would be one's long term investment as well (LIC/Pension Plan/SIP etc). Once these monthly outflows are gone, where does that leave the individual for monthly expenditure, indulgence, vacation plans etc ?

I think many still go and take that risk based on their dual income status. But still it might not be a good idea. One can take a risk on higher EMIs for home leans with some assumptions on increase in salaries. But then that is fine because home loan is also a long term investment unlike a car loan.

[apachelongbow]

Originally Posted by aseem

This is how I personally feel having started this thread and now brought a car myself....

Critierias:

1. Yearly Income
2. Age Group
3. Cars Available in given price range
4. Family Wealth

Income 4-8 Lakhs

Income 8-14 Lakhs

Income 14-20 Lakhs

Income 20-25 Lakhs
Cars: ANHC, Vento, Civic, Cruze etc

30 = Mature
20-27 = Younger
40+ = Old :(

Good segmentation. However are you speaking of takehome income or gross income?
A gross income of 20-25lacs/annum which is avg 2lacs per month works out to be a take home of around 1.5lacs per month.
Considering 20% (on higher side) EMI for car, we are looking at 30k per month, which is 3.6 lacs per year. If one pays even 30% of on road cost from his pocket, its difficult to get emi for 30k for a civic or a cruise, is it not?

[lurker]

One should also remember that current housing prices are almost bubble-like inflated and what one 'invests' towards EMI towards house need not necessarily be always rewarded by higher returns especially in case of flats/apartments. The price may not collapse all of a sudden, but the supply will ensure that there are really few takers for high-priced apartments (1 crore+) in a gloomy market.