How Much to Spend on a Car in India? How to Calculate?

Every person at a certain point in their life will think and contemplate this specific question- ‘How much to spend on a car?’

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Today we are going to take a deeper look into this and give you a few points to consider, particularly if you want to know how much you should spend on your first car. 

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But before you navigate the vast labyrinth of brands and car choices, here are a few considerations you can make before how much should you spend on a car.

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Calculate How Much to Spend on a Car

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Here is how you can decide on how much to spend on a car -

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Step 1 - The Rule of Thumb

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The rule of thumb when deciding how much to spend on a carm, is not to spend more than half of your annual income on a new car. Lets say your annual salary package ₹20 lakhs, the budget for your car should be half of that, which come to ₹10 lakhs.
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It's essential to factor in the on-road price of the car. The total cost comprises various expenses like road tax, registration fees, and insurance premiums, making it typically upto 20% more than the ex-showroom price.

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Step 2 - 20/4/10 Rule in India

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The 20/4/10 rule can help you decide how much to spend on a car. The 20 stands for the down payment- you should be able to pay 20% of the car’s total as a down payment out of pocket.

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The 4 stands for the loan tenure; your total car loan shouldn’t extend longer than 4 years. The 10 stands for 10% of total monthly income; your car loan and transportation cost shouldn’t exceed 10% of your family’s monthly income. Using the 20/4/10 rule for buying a car may be a useful tool to help budget for your next car purchase. 

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Step 3 - Car Requirements

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Before deciding on how much to spend on your first car, it is important to consider what you need from a car. Do you need a car for commuting, for long drives, or simply as a means of transportation?

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You should also consider the size of your family, whether you need extra cargo space, and if you require any special features such as all-wheel drive or advanced safety features.

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Step 4 - Cost of Ownership 

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When it comes to deciding how much you should spend on a car in India, there are several other costs besides the total amount you spend on simply purchasing the car. A few other costs to consider include insurance premiums, maintenance, fuel price, servicing cost and many more.

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It’s important to thoroughly research these costs to ensure you can comfortably afford the cost of ownership of your new car. 

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Step 5 - Technical Specifications 

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Besides budget and personal requirements, there’s one more key aspect to consider before deciding how much you should spend on a car and that’s some technical specifications.

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Whether you’re fluent in automobile jargon or not, it's crucial to make a few technical decisions like diesel vs. petrol, automatic vs. manual, etc. It’s key to consider these aspects as they can significantly change the cost of the car you wish to purchase. 

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Step 6 - Taxes & Additional Fees 

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The last factor that helps you decide “how much can I afford to spend on a car” is taxes and additional fees besides the cost of the car itself and ownership costs.

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The taxes on new cars in India can vary depending on several factors, including the state in which the car is registered and the type of car being purchased.

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Let’s discuss some common taxes and additional fees: 

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GST (Goods and Services Tax): This is a tax levied by the Indian government on most goods and services, including cars and the current GST rate on cars is 28%.

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Road tax: This is a tax levied by the state government on the purchase of a new vehicle, and the rate varies depending on the state you live in. Road tax can be anywhere from 8% to 20% of the car's showroom price.

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Registration fee: This is a fee charged by the RTO (Regional Transport Office) for registering the vehicle and obtaining a license plate. The fee varies from state to state and is usually a few thousand rupees.

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Insurance: Car insurance is mandatory in India and the premium depends on the type of car, its value, and the coverage required. 

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Handling and logistics charges: These are charges levied by the dealership for transporting the car from the factory to the showroom and handling the paperwork. 

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Now that you know the costs and technical requirements for deciding how much to spend on a car, let’s deep dive into the age-old question: should you buy brand new, or second-hand? 

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The Car Buyer types

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If you’re still unsure about your car choice or how much should you spend on your first car, here’s something fun that can help! We’ve broken down the type of first-time car purchasers into 4 archetypes to help you find the type that resonates with you the most. 

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1. Safety-First

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This archetype is someone who values safety above all else when it comes to purchasing a car. They are willing to spend more to get the latest safety features and technologies.

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2. Budget-Friendly

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This archetype is someone who prioritizes saving money and getting the most out of their budget. They are willing to sacrifice luxury features and may opt for a smaller, more fuel-efficient car. 

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3. Family-Friendly

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This archetype is someone who needs a car that can accommodate their entire family and all their belongings. They prioritize space, comfort, and practicality when it comes to their car purchase.

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4. Style-Conscious

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This archetype is someone who values the aesthetics and image of their car as much as its functionality. They are willing to spend more on a car that looks good and makes a statement.

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New Car vs. Secondhand Car 

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There are advantages to buying a new as well as a second-hand car. Here, we are going to break it down for you so that you can make the right decision for you and your family. 

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Buying a New Car 

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Pros: 

• Warranty: A new car comes with a manufacturer's warranty, which gives you peace of mind and protection against any manufacturing defects.

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• Latest features and technology:  New cars come equipped with the latest safety features, entertainment systems, and technology that may not be available in older models.

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Cons:

• Expensive:  New cars are definitely more expensive than used cars, and you may have to take a loan or make a large down payment to afford one. 

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• Insurance costs:  The insurance costs for a new car are generally higher than those for a used car.

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Buying a Secondhand Car 

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Pros: 

• Lower cost: Used cars are generally less expensive than new cars, and you may be able to afford a better model or features than if you were buying new one.

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• Lower depreciation: Used cars have already experienced their initial depreciation, which means that they will lose value at a slower rate than new cars.

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Cons:

• Risk of hidden problems: Used cars may have hidden problems or damage that may not be immediately apparent. It's important to get a thorough inspection before buying a used car.

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• Limited warranty: Used cars may have limited or no warranty, which means that you may be responsible for any repairs or maintenance costs.

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• Higher maintenance costs: Used cars may require more maintenance and repairs than new cars, which can add to the overall cost of ownership.

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If buying a new car is something you are still considering, then maybe leasing may be a better option for you. Read more here: Leasing vs. Buying: What does your wallet permit? 

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Besides car leases and ownership, a new trend in the industry is car subscription: a way to own a car without the hassles. In this model, you pay a monthly fee to third-party dealers or car manufacturers directly to drive the car of your dreams.

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Things to Remember -

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• Determine your monthly income & expenses - By calculating your income and expenses, you know exactly how much money is coming in and going out. This helps determine how much you are capable of saving each month. You can also look up the best car for your monthly salary in India to understand some of your options. 

• Decide on a monthly car payment - This is the amount of money you are comfortable spending on your car payment each month. You can find ‘How much should I spend on a car’ calculators online to help you estimate your monthly payment.

• Consider all car-related expenses - As mentioned above, calculate the estimated cost of ownership, taxes and fees to understand how much you will have to pay additionally. You can use online estimators or speak with a car dealer or insurance agent to get an idea of these costs.

• Determine your down payment - Your down payment percentage is crucial to decide how much you can afford to spend on a car. This is the amount of money you can afford to pay upfront when buying a car. Generally, it's recommended to make a down payment of at least 10% of the car's purchase price. 

• Decide on a loan term - This is the length of time you will take to pay off your car loan. A longer loan term means lower monthly payments, but it also means you will pay more in interest over time. Taking a car loan with a poor credit score may be difficult but it is definitely still possible with the right measures. 

• Calculate your total car budget - This is the total amount of money you can afford to spend on a car, including the down payment, monthly payments, and other expenses. “How much should I spend on a car” calculators can help you get this exact number online in a few clicks. 

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Remember to prioritize safety, consider all the expenses involved, and be realistic about what you can afford.