Finance World

Fueling Your Goals: The Financial Roadmap to Car Ownership

Introduction:

Owning a car is a desirable goal for many, and financial institutions have made it increasingly accessible. This blog empowers you to navigate this exciting prospect by providing valuable insights for making informed financial decisions. While car ownership can enhance your lifestyle, it is crucial to consider all financial implications before proceeding. This article explores practical considerations to ensure your decision aligns with
your long-term financial well-being. By carefully evaluating your financial situation, you can achieve the joy of car ownership while maintaining financial stability.

We have two options to buy a car.

  1. Cash Purchases: A Financially Strong Option

For those with the financial means, purchasing a car outright can be a very attractive option. However, it is important to maintain a balanced approach. Experts recommend allocating no more than 50% of your annual income towards a car purchase. For example, with an annual income of ₹20 lakh, a comfortable car budget might be around ₹10 lakh.

(1.1) Planning for Success: A Smart Investment Strategy

Planning ahead is crucial for any significant purchase. Spontaneous car purchases can have unforeseen financial consequences. Taking time to consider your budget and investment options allows for a more informed decision. This approach can help you achieve your goal of car ownership without unnecessary financial burdens, such as loan interest.

2. Financing Your Purchase: Considerations for Car Loans

For those who may not have the full amount upfront, car loans can be a viable option to achieve car ownership. However, careful planning is essential to ensure the loan remains manageable. Here are some key factors to consider:
Advisable to follow the rules 20-4-10 rule governs car loans:

=> 20% Down Payment: A minimum down payment of 20% of the on-road price is recommended. A higher down payment can further reduce your loan burden and interest costs. Be mindful of the quoted price – ensure it includes on-road costs, not just the ex-showroom price.

=> 4 years Loan Term: While lenders may offer extended loan terms, opting for a shorter term (ideally 4 years or less) will minimize interest payments and allow you to become debt-free sooner. Resist the temptation of longer loan terms, which may seem attractive but can significantly increase your overall loan cost.

=> 10% Monthly Payment Affordability: It is crucial to ensure your monthly EMI (Equated Monthly Installment) does not exceed 10% of your take-home salary. Focus on this figure, not your gross salary, as some lenders might calculate based on that. Remember, car ownership also involves ongoing maintenance costs, which are typically not covered by insurance. Factor these additional expenses into your affordability calculations.

For calculating EMI you can consider below links:

When to Pause and Reflect:

  • Monthly Expenses: Evaluate your monthly expenses. If you are not saving, reconsider buying a car—it could strain your finances.
  • Existing Loans: If you already have loans (home, personal, or credit card), check if they consume more than 40% of your income. If so, focus on reducing existing debt before considering a car loan.
  • High Expense Ratio: If your monthly expenses account for 60-70% of your salary, be cautious. While you can increase the car loan EMI beyond 10%, it is best to adhere to the limit.

Considerations for Choosing a Car: This section provides general recommendations to help you navigate the car selection process. It assumes some standard monthly expenses, but feel free to adjust these based on your individual circumstances. If your financial situation differs significantly, you can tailor your car selection accordingly.

Monthly Income Group Below ₹50,000: Car ownership can be a significant financial commitment. For those in this income bracket, prioritizing building a strong financial foundation is often the most prudent course of action. Consider exploring alternative transportation options like ride-sharing services until your income increases. Remember, the long-term financial benefits often outweigh the immediate gratification of car ownership.

Monthly Income Group ₹50,000 – ₹100,000: For those in this income range considering car ownership, responsible financing is crucial. Here are some recommended guidelines:

  • Loan Amount: Limit your loan amount to around ₹4 lakh to ensure manageable monthly payments.
  • Loan Term: opt for a shorter loan term, ideally 4 years or less, to minimize interest costs.
  • Initial Payment: Below are some examples
    • If car on road cost is around ₹5 lakhs, then Initial payment would be ₹1 Lakhs minumum (20% of on road value)
    • If car on road cost is around ₹6 lakhs, then Initial payment would be ₹2 Lakhs. Need to limit the Loan Amount around ₹4 lakh
    • If car on road cost is around ₹8 lakhs, then Initial payment would be ₹4 Lakhs. Need to limit the Loan Amount around ₹4 lakh

It is also suggested that the car value should be not very expensive as others factor of car like insurance road tax fuel efficiency is also needed to check before investing in car.

Monthly Income Group ₹100,000 – ₹150,000: Individuals with a monthly income between ₹100,000 and ₹150,000 have more flexibility when considering car ownership. Here are some recommendations:

  • Loan Amount: Consider limiting your loan amount to around ₹6 lakh.
  • Loan Term: A shorter loan term of 4 years or less is still recommended to manage interest costs effectively.
  • Initial Payment: Below are some examples
    • If car on road cost is around ₹7.5 lakhs, then Initial payment would be ₹1.5 Lakhs minumum (20% of on road value)
    • If car on road cost is around ₹9 lakhs, then Initial payment would be ₹3 Lakhs. Need to limit the Loan Amount around ₹6 lakh
    • If car on road cost is around ₹10 lakhs, then Initial payment would be ₹4 Lakhs. Need to limit the Loan Amount around ₹6lakh

Hatchback cars are often a popular choice for their affordability, fuel efficiency, and maneuverability. They come in a wide range of styles and budgets. While sedans can offer more legroom and a different driving experience, they may also have a higher price tag and potentially lower fuel efficiency. Ultimately, the best car type depends on your individual needs,
preferences, and budget.

Monthly Income Group ₹150,000 – ₹200,000:

Individuals with a monthly income between ₹150,000 and ₹200,000 have more flexibility when considering car ownership. Here are some recommendations:

  • Loan Amount: Consider limiting your loan amount to around ₹8 lakh.
  • Loan Term: A shorter loan term of 4 years or less is still recommended to manage interest costs effectively.
  • Initial Payment: Below are some examples
    • If car on road cost is around ₹10 lakhs Rs. 2 Lakhs minumum (20% of on road value)
    • If car on road cost is around ₹12 lakhs, then Initial payment would be ₹4 Lakhs. Need to limit the Loan Amount around ₹8 lakh
    • If car on road cost is around ₹14 lakhs, then Initial payment would be ₹6Lakhs. Need to limit the Loan Amount around ₹8 lakh

Sedon or SUV cars are often a popular choice for their affordability, fuel efficiency, and maneuverability. They come in a wide range of styles and budgets.

Below are some links to check car on road price

In Conclusion: Achieving Your Dream Ride

Owning a car can be a liberating and fulfilling experience. By carefully considering your financial situation and following responsible budgeting practices, you can turn the dream of car ownership into a reality. This blog aimed to empower you with the knowledge and tools to make informed decisions throughout the car buying process. We encourage you to research
thoroughly, prioritize your financial well-being, and choose a car that aligns with your lifestyle and budget.
Thank you for reading! We wish you all the best in your car ownership journey. Do you have any questions or additional factors you would like to consider? Leave a comment below and let’s discuss! We are happy to exchange our ideas and thoughts with you to help all make a well-informed decision that aligns with our financial goals.

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