Question: Can you afford to purchase a new car?
Another question: if you can indeed afford it, how much exactly can you afford? Which, in turn, pops up another question - What can you afford to pay per month?
Okay, answers now.
The first step is to assess your personal budget and determine what you can afford a month. There are many personal budgeting guides out there that will give you an idea of how much spare money you have each month. As a general rule of thumb, you should track every paisa you spend over a period of at least a month. This will help determine where you really spend your money and how much you can afford. Take into consideration all basic necessities and set aside a certain portion for contingencies. You might be actually surprised to learn exactly where your money is going each month. And make slight adjustments to your spending patterns to ensure that you have a respectable amount that you can set aside.
Now work backwards from here.
Let’s assume that you can afford to pay Rs.10000 a month for that new car. Taking into calculation current interest rates offered on car loans, you can now calculate how much you can borrow.
If you can afford an EMI of Rs.10000, at an interest rate of 14% per annum for a 60-month loan, you are eligible for a loan of Rs. 4.29 lakh approximately.
You now know your upper limit for the car loan. If your EMI outlay per month is around 30-40% of your net take-home pay, you are home and dry. You can have that car and the cost will not play havoc with your monthly budget.
The above tips will help you to get an idea of the new car that you can afford. Loan amounts disbursed are totally at the discretion of the lender. If you have good credit history, lenders could finance 100% of the car cost. Typically, you need to put up 10-15% of the cost of the car. In the above-mentioned scenario that would work to around Rs. 75000. Add this to the loan amount and the car you can afford is really over Rs. 5 lakh!
The author is a Relationship Manager working with the Mumbai-based SRE Financial Planners.
May 27th, 2008 at 4:23 pm
Great Article !!Keep it Up!! Now I understand when to buy the Car
May 27th, 2008 at 4:25 pm
Nice and interesting article. Pls write an article on How can one afford to buy that diamond set….
May 27th, 2008 at 4:34 pm
Nice article!!!
It helped me to understand the car loan in layman’s language.
May 27th, 2008 at 6:57 pm
The article talks about affordibility but I have a view to share that if at all we are capable enough we should always understand that car is a mode of transportation and should not be considered as a element of pride since this would by default hit our savings which might in the long run effect our finacial planning.
May 28th, 2008 at 9:44 am
The Numerical illustration has given me a signal to relook at my EMI on my car loan before signing the loan papers, so that my monthly budget remain comfortable.
June 2nd, 2008 at 11:29 am
I read your artical, it is good effort. I like to know the same way if I want to buy a house, worth 50 lac, by paying down payment of 10% bal ance way of Loan for 15 years at prevailing intrest ie, 10% reduce balance, what will be my EMI, and how much i will be paying intrest for the period of 15 years.
Same way mortage rate is 7% per anum on straight payment what will be my EMI
thanks
June 2nd, 2008 at 1:51 pm
The article is very crisp. May be attaching the same with an relevant example viz-a-viz salary would be really help a salaried to understand it well. Also if possible attach Info with Lease Car option from a company. As the interest element paid on it is exempted in Income Tax. Good show … Keep it up
August 26th, 2008 at 1:21 pm
Ms. Asher, this is a good informative article on car loans. Apart from this do you any more articles?
November 19th, 2008 at 5:17 pm
Very good explanation of the EMI one can afford. This would actually help in calculating affrodable expenditure on a car.
Small questions which are in our thought process we feel shy to ask them. But, if you are taking a loan, no question is silly and small.
You have focused on today`s requirement and accordingly given a solution to it.
November 19th, 2008 at 5:27 pm
In India, car is no longer an luxury asset, it has become our necessity.
Buying car is an easy process. but which one to buy and how to finance the car requires a brain storming session.
I think your article should reach to the masses.
November 19th, 2008 at 5:39 pm
Your article gives a clear picture of affordable loans one should look for when buying a car.
You can even help us getting the quotes of the best rates or a comparator on the loan. Or can you help us with the link where I can get a comparison.
Does any of the website provides with a compaarator for the same.
November 19th, 2008 at 5:46 pm
Hi,
I was just surfing through the net and some how entered to this blog.
Its really interesting to read more and more on finance. This blog helps you for investments along with our debts i.e. liability.
I visited your website http://www.apnaloan.com and found a link for the car loan comparator. I just felt like sharing with you all. Here is the link
http://www.apnaloan.com/car-loan-india/compare.html
December 18th, 2008 at 3:02 pm
I liked you piece but was wondering why you have not contributed any other piece. I think you should contribute more so that it is helpful to people like us to improve our knowledge.