Car Buying: Know Monthly Income or Get Stuck in Debt

AkhandIndia (New Delhi): Car buying may be a dream for many people, but it is also a reality that cars have become a necessity for people. Having a car in the family feels like a necessity. However, buying a car is not easy because it is an expensive investment. Even to buy the cheapest car in India, you will have to spend at least 4-5 lakh rupees. It is not necessary for everyone to have that much money. That is why most people take loans to buy a car. Many people make mistakes in this regard.

When it comes to taking a loan, people choose a car that is more expensive than their budget because they think the loan will be paid off later. However, this is not the case, and many problems arise later. So now how do you know how much budget a person should have to buy a car? There are two popular formulas in the world of finance for this. The first formula suggests the maximum amount of money one should spend on buying a car based on their annual income, and the second formula suggests how much loan one should take to buy a car. It also includes some other factors.

Do not spend more than half of your annual income

Do not spend more than half of your annual income to buy a new car. Remember this rule. Let’s say your annual income is 10 lakh rupees, then your maximum budget for buying a car should be 5 lakh rupees. Similarly, if you earn 20 lakh rupees annually, you can set a budget of up to 15 lakh rupees to buy a car. Keep in mind that this budget should be the on-road price of the car.

Remember the 20/4/10 rule

If you buy a car on a loan, remember the 20/4/10 formula. It suggests that when buying a car on a loan, pay at least 20% of its price as a down payment, do not keep the loan term more than 4 years, and make sure that the EMI does not exceed 10% of your salary.