Do you dream of buying a car worth 20 lakhs? Understand how much income you should have for this..
In today's era, the craze for SUVs and premium sedans has increased so much that everyone wants their next car to be in the budget of 20 to 22 lakhs. But it is not wise to lose your senses in enthusiasm. Buying an expensive car is not limited to just paying the down payment and EMI. There are many other expenses associated with it, which people often do not pay attention to. Therefore, before turning this dream into reality, definitely know some important things, so that this dream of yours does not become heavy on your pocket. Here, understand how much your income should be to buy a car worth 20 lakhs.
Understand the 20/4/10 rule.
Whenever it comes to buying a car, financial planners tell a very famous rule, which is called the 20/4/10 rule. This rule helps you to understand how financially prepared you are.
20% down payment
You should pay at least 20% of the on-road price of the car from your pocket. This reduces your loan amount and also reduces the interest burden on you.
4-year loan
The loan period for the car should not be more than 4 years (48 months). A car is a depreciating asset, meaning its value decreases over time. Taking a long loan means that you will be paying interest for years on something whose value is constantly decreasing.
10% EMI
The EMI (monthly installment) of your car should not be more than 10% of your total monthly income (in-hand salary).
Let's do the complete calculation of a car worth Rs 20 lakh.
Now let's apply this rule to a car worth Rs 20 lakh. The first and biggest mistake that people make is to consider the ex-showroom price as final. Whereas the on-road price of a car is different from the ex-showroom price.
On-road price
The on-road price of a car worth Rs 20 lakhs comes to around Rs 23-24 lakhs. This includes RTO registration, insurance, TCS, and other expenses. We are assuming an on-road price of Rs 23 lakhs for calculations.
Down payment (20%): As per the 20/4/10 rule, you need to make a down payment of 20% of Rs 23 lakhs, i.e., Rs 4.6 lakhs.
Loan amount: After making the down payment, your loan amount will be: Rs 23,00,000 - Rs 4,60,000 = Rs 18.4 lakhs.
EMI calculation (for 4 years): Now, let's calculate the EMI for a loan of Rs 18.4 lakhs for 4 years (48 months). If we assume an interest rate of 9%, your EMI will be around ₹45,500 per month.
So what should be your salary?
Now, let's come to the most important question. The last part of the 20/4/10 rule says that your EMI should not exceed 10% of your monthly income.
If your EMI is ₹45,500, then according to this rule, your monthly income should be:
₹45,500 x 10 = ₹4,55,000 per month.
Yes, according to this strict rule, to comfortably buy a car worth ₹20 lakh, your monthly salary should be more than ₹4.5 lakh.
Don't just add EMI, add other expenses of the car too.
Another big mistake that people make is to ignore the other expenses of the car. The car does not run only on EMI.
Fuel: If you travel even 1000 km in a month, then according to today's petrol price, your expenditure will be ₹8,000 to ₹10,000.
Maintenance: Servicing an expensive car is also expensive. It can cost ₹15,000 to ₹25,000 annually.
Insurance: You need to renew your insurance every year, which can cost ₹40,000 to ₹60,000.
If we average out all these expenses, it comes to around ₹12,000 to ₹15,000 per month.
The bottom line is that dreaming of a car worth ₹20 lakhs is not wrong, but to achieve it, your financial foundation needs to be very strong. A decision taken in haste can leave you "Car Poor", i.e. a situation where a large part of your income is being spent on just one depreciating asset, and you miss out on other important financial mistakes (like buying a house, investing, travelling).
Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
