How much to spend to buy a car in India: Calculate car budget

Buying a car in India is more than just owning a machine with four wheels. It's a matter of pride and gives a sense of achievement to the buyer. There are an infinite number of options if you are planning to buy a car. But before that, you may need to do some math to calculate the budget for your new vehicle. If you feel that your number game is not A-level, this article will help you calculate your car budget. Read on to find out how much to spend while buying a car in India.

How much to spend on a new car in India?

A car is the second biggest purchase decision after a home. Hence, deciding the budget for the purchase beforehand will help you in selecting the right vehicle. Calculating the budget for a new car is extremely important as it will help you shortlist the potential options. 

But before deciding the budget for a new car purchase, the obvious question on your mind would be how much to spend on a car. The answer to this question depends on various factors such as your requirements, financial condition, what features you are looking for in a car, etc. In the following sections, we will throw light on those factors with detailed explanations.

Points to consider while calculating car budget

As mentioned earlier, there are several factors to consider before deciding how much to spend on a car. Here are the points you should keep in mind before determining the budget for your new car purchase.

• Remember the thumb rule: Always remember the thumb rule of not spending more than half of your annual income on a new car. For instance, if an individual earns Rs 10 lakh per annum, the ideal budget for the vehicle would be Rs. 5 lakhs. Note that always consider the car's on-road price when calculating the budget because it is the final price you pay to drive your vehicle from the showroom. If you are purchasing the car on loan, there is another thumb rule to consider, and that's 20/4/10. Confusing? Let's simplify the numbers. When buying a car on loan, make a down payment of 20% of the vehicle's price. Opt for a loan tenure that is not more than four years. And lastly, keep the monthly payments (EMI, maintenance, etc.) to 10% of your salary.

• Select the right car size: Select the right car based on your usage. Always pick the car size based on two factors: family size and use. For a family of four, a hatchback car is suitable. However, if there are teens or adults, a sedan makes for an ideal choice. Similarly, a joint family may need a MUV (Multi Utility Vehicle). To sum it up, do not opt for a larger car than required as it will unnecessarily stretch the budget.

• Affordability vs luxury: Ensure that you account for factors such as financial status before opting for a car brand. Just because a luxury car offers superior performance and comfort, it does not mean that you blindly go for that vehicle. Always choose the brand according to your budget, even though you have to settle for an affordable brand. Spending too much on a luxury car can lead to financial instability in the future.

• Consider negative compounding: A car is a depreciating asset. When you drive your new car out of the showroom, its value drops by 5%. After five years, the value depreciates to less than half of the price you paid. So, it’s not ideal to spend more than what is necessary. For example, because you can get a car loan of Rs 25 lakhs, you cannot buy a car worth Rs 25 lakhs. The more the loan amount, the more interest you pay. So, be wise while setting the car budget.

• Cost of ownership: It's not only the car's on-road price that matters while deciding on a car budget. One should also account for the cost of ownership. Consider the factors such as fuel economy, service/spare parts cost, maintenance cost, car insurance premium, etc., while calculating the budget for your car. Initially, the ownership cost may seem insignificant, but it can be a financial burden if you end up miscalculating the budget.

• Check technical specifications: A car is a complex machine, and the know-how of the technical specifications will help you decide the budget. Research on technical aspects of the vehicle to calculate the budget. The questions like petrol or diesel car, manual or automatic or how much power the engine produces can be answered if you do a quick research of the car's specifications. With an exhaustive list of automotive websites, you can easily research about technical specifications of a car online. You can also read/watch expert reviews of the vehicles you have shortlisted. It will be helpful for you to zero in on a vehicle.

New vs old car: If you are tight on budget and looking for a value for money proposition, you can consider used vehicles. You can easily find used cars via online used car markets or scout a suitable vehicle in the offline market. You may come across a good deal that fits your pocket and requirement.

• Discount offers: You can also avail of attractive discount offers while buying a new car. But for that to happen, you have to purchase the vehicle at the right time of the year. Generally, dealers/manufacturers offer discounts during special occasions, festival seasons, or year-end months. Figure out which is the right time to buy the car and avail a significant discount on your purchase.

• Check your savings: Not everyone may be able to purchase a car by paying the total amount. If you are running short of funds, you may opt for a car loan. Generally, financial institutions finance up to 80-85% of the car's price. The remaining balance is your contribution which is called a down payment. But that's not an ideal purchase decision if you are looking for value for money.

Ideally, you should contribute 50%, and the remaining 50% can be accounted for by car loan. If you don't have enough savings, you will end up paying a substantial amount of money as loan interest. To avoid this, you may want to have enough savings before you buy a car.

Also, read: Car buying guide

How much should I spend on a car based on salary in India?

So, how much to spend on a car if you are a salaried individual? The answer to this question is the thumb rule of not spending more than 50% of your annual salary. Whether to consider the net income or gross income, it’s up to you.

If your annual income is Rs. 10 lakhs, you can settle for a budget of Rs. 5 lakhs for your new car. But do remember that always consider the on-road price of the vehicle while deciding the budget. Also, do consider the 20/4/10 rule if you're planning to purchase the car on loan. Both the thumb rules are explained in detail in the above sections of this article.

Types of spenders and new car budgeting advice

You have already got an idea regarding how much to spend on a car. Now, let’s take a look at the types of buyers. There are different car buyers in India, and they all have different attitudes towards a car. Some prefer a value for money car, while some wish to own the best car in the market. Below are the types of car buyers in India.

Frugal buyer

A frugal buyer is the one who is purchasing a car because they need one. They do not pay much attention to looks or features. The primary criteria are to meet the transportation requirements. 

Tips/advice on budgeting

• Typically, the value of the car may be 20-25% of the annual income.

• There may not be too many options in the market when it comes to new cars. 

• Purchasing a used car is an ideal option.

• One can easily find used cars online or offline and get a good deal.

Value seeker

A value seeker is a type of buyer who wants the most out of the car for the price they pay. They don't look for advanced features or accessories which may bump up the car's price.

Tips/advice on budgeting

• The value of the car is around 40-50% of the annual income.

• Entry-level hatchbacks are the best option.

• One can also look for used sedans, but the maintenance costs may run high.

• Opt for the CNG fuel option for lower running costs.

The upgrader

The upgrader is a type of buyer who already owns an entry-level car and wants to upgrade to a sedan or an SUV. The buyers in this category do not mind spending on comfort features/accessories.

Tips/advice on budgeting

• The value of the car is around 60-70% of the annual income.

• There are many options in the market but do consider the cost of ownership while purchasing the car.

• Ensure that you transfer the NCB (No Claim Bonus) benefits on your car insurance from the old car to the new vehicle.

Big spender

A big spender is a type of buyer for whom a car is a status symbol. They are willing to spend on luxury cars and pay more attention to the design and features of the vehicle. Here, budget is not an issue.

Tips/advice on budgeting

• The value of the car is around 100-125% of the annual income.

• There are plenty of options, including luxury sedans, SUVs and sports cars.

• Generally, dealers offer the best deals on luxury cars. Look out for discounts before making the purchase.

Ways to calculate new car budget

To calculate the new car budget, you may have to account for factors that are listed below.

• On-road price: Always consider the car's total price (on-road price) when calculating a new car budget. The total price includes the car's ex-showroom price, taxes, registration fees, and any other additional accessories or services.

• Monthly payments: If you opt for a car loan to purchase the vehicle, you should also account for the monthly payments or EMIs. It depends on the down payment, rate of interest and tenure of the loan. If possible, you can wait till the interest rates come down so that you can stretch the budget or save on monthly payments.

• Down payment: It is a term associated with a car loan. It is an upfront amount you pay while buying the car on loan. The more the down payment, the less the EMI.

• Exchange value: If you already own a car, you can consider exchanging it while buying a new car. It will help you reduce the cost of the new vehicle, provided you get a good resale value for your used car.

• Total debt: Consider your current debts (loans, credit card payments, EMIs, etc.) before opting for a car loan. If you already have too many loans, buying a new car on loan will add to the financial burden. So, be wise while making the purchase decision.

• Affordability calculator: If you find it difficult to calculate the new car budget, you can take the help of online tools such as the car affordability calculator and EMI calculator. The tools take into account the factors such as your monthly income, expenses, savings, loan tenure, rate of interest to calculate the monthly EMI. It will give you an idea of whether you can afford that particular car or not.

Also, read: How to drive a car?

Takeaway

So, how much to spend on a new car? It’s a very tricky question, and there is no specific answer to this as it varies from one individual to another. It all depends on your financial health and other factors such as your requirements, car usage, etc. But by following the tips mentioned in this article, you can ensure that you are not overspending on your next car purchase. Be wise in deciding the new car budget, and never stretch it unnecessarily as it can make your financial plans go for a toss in the future.

If you plan to buy a new car and are looking for attractive discount offers, you can purchase the vehicle online at ACKO Drive. The advantages of buying a car at ACKO Drive are attractive discount offers and faster vehicle delivery on a priority basis. Above all, you can buy your car online without visiting multiple car dealerships. Log on to www.ackodrive.com to explore new car models.

Frequently asked questions

Here are some of the most commonly asked questions related to calculating a new car budget.

What percentage of my annual income should I spend on my new car?

Ensure that you don't spend more than 50% of your annual income on your new car. Also, consider the on-road price of the vehicle while setting the budget based on your salary.

Should I have enough savings to buy a new car?

Yes, even if you purchase a new car via a loan, you need to have enough savings to pay the down payment. The ideal situation would be you contributing 50% of the car's on-road price, and the rest of the amount can be taken as a car loan.

Is considering a used car a good option instead of spending on a new car?

It entirely depends on your financial situation and requirements. If you need a car and do not have enough savings/funds, you can go for used cars. But, if you can wait for some time and save up, you can purchase a brand new car. Also, if you are a novice driver who has just learnt to drive a car and are not sure about car usage, spending on a brand new car may not be a sensible option. In such situations, you can consider buying a used vehicle.