Carbuyer's Guide: How to decide budget for your new vehicle depending on your income? Know calculation here

Purchasing a car in India is often regarded as a luxury buy and a matter of pride for the carbuyer. Buying one's first car can be exciting, but must one must not let the euphoria tempt them into opting for a vehicle that's beyond their budget. While buying a new car, one must bear in mind that the on-road price is the only one component of the purchase and there are several other costs involved. 

There can be an unlimited number of manufacturers and models and options to choose from while purchasing a car, but one must first conduct calculations to determine their own budget for the new vehicle. We analyse the factors involved while determining the optimal budget for the dream car.

Here are a few points that you should consider before buying a car.

Thumb rule: 20/4/10

While purchasing a car on a loan, the first thing one must consider is the 20/4/10 rule. Which states that — 
20 - One must make 20 per cent down payment of vehicle's on-road price. 
4- One must opt for a loan term that's no more than four years. 
10- Finally, the monthly payments (EMI, maintenance, etc.) must not be more than 10 per cent of their monthly salary.

However, if not opting for a car loan, then one can spend half their annual salary on the purchase. For example, if the net salary is Rs 12 lakh per annum, then one must not spend more than Rs 6 lakh to buy a new car.

Bear in mind that the on-road price of the car should always be considered while determining the budget, as it is the actual cost one has to pay to drive a vehicle out of the showroom.

Car size

Always choose a car that is appropriate for your needs. There are two major factors to consider — family size and use. For example, a hatchback vehicle is optimal for a four-person household. However, if there are more than four family members, then a sedan can be the better choice. A bigger family may also require an MUV (Multi Utility Vehicle). To summarise, one must stick to what's required, because a larger vehicle can needlessly extend the budget.

Technical specifications

To determine the budget, one must always research the technical characteristics of the car. By conducting some research regarding their shortlisted car options, one can get answers to queries like if it is a petrol or diesel car, whether it is manual or automatic.

Brand

Always select a car brand based on the budget, as spending too much on a luxury automobile might lead to financial instability in the future.

Cost of ownership

When deciding on a car budget, more than the car's on-road price, it is important to consider the cost of ownership. While calculating the budget for buying a car, one must consider aspects like fuel efficiency, service/spare parts cost, maintenance cost, car insurance price, etc. At first the ownership cost may appear manageable, but it can become a financial burden in the long run if the budget isn't calculated well.