Buying Your First Car? Here are the Factors you Should Consider

A car is more than just a machine on four wheels. It is a status symbol. But it should not stop you from considering the important factors you need to consider before buying your first car.

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Purchasing a vehicle is the second biggest investment in a millennial's life after home.

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Hence, it would be best to consider all factors before buying.

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This guide will help you make the right decision.

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How long should you wait to get a car after getting a job?

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Gen Zs or millennials, buying a car right after getting their first job is everyone's dream.

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But, it may not be the wisest decision. Here's why. 

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1. Employment history

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‍If you plan to buy a car using an auto loan fresh out of college and in your first job, wait at least six months or, ideally, one year.

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Most loan providers require a substantial employment history before dispersing any loan. 

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2. Build credit score

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This is a crucial eligibility criterion for getting any loan.

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While you wait to build up the necessary employment history, use this time to construct a good credit score.

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A year or two is sufficient time to do so. Ensure you pay your bills on time and do not leave any outstanding balance.

‍3. Consider your existing debt

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Before getting into the loan cycle to buy a car, consider a few things.

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• Why do you need the vehicle? Is it a necessity or due to peer pressure?
• Do you have any existing debt? Personal loan or education loan?
• How much does your living cost?
• How much money are you investing every month?
• How much money do you have left after paying for everything?

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How much loan should you take?

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Once you have answers to all of the above questions and know you can afford an additional debt burden, you can buy a car on loan.

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Your car should not cost more than 50% of your annual salary.

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The thumb rule to calculate the ideal loan amount is to employ the 20/4/10 formula. According to this, you should pay 20% of the car amount as a down payment, and the remaining 80% can be paid by loan.

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You should try and pay this amount within 4 years of acquiring the loan, and the EMI should not exceed 10% of your monthly take-home salary.

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Let's understand this with a simple example. Let's say your annual CTC is 10 LPA. So, your car amount (on-road price) should not exceed 5 Lakh. So you should pay 1 Lakh as a down payment and encash the remaining 4 Lakh with a loan. Hence, your monthly EMI would be ₹9,578 at an average of 7% interest for the 4-year loan.

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What are the things you should consider before purchasing a car?

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As discussed earlier, car purchasing is not an easy decision to make.

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Apart from the loan amount, the affordability of monthly EMIs, credit score, and employment requirement, there are other factors you should consider before buying a car after getting your first job.

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1. On-road price

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‍When you decide to buy a car, the price of the vehicle is not the only thing you have to pay.

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You also need to factor in the license cost, registration, road tax, insurance, and other necessary accessories.

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Car shopping is worth it only if you can afford all these additional expenses.

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2. Car type

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‍Buying a car is as much an aspirational expense as it is a necessary one.

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Your chosen car should be based on its usage, not just as a status symbol. For instance, a hatchback is suitable if you are single or have a family of 3-4.

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If you have teens or pets, a sedan should be ideal. And if you go on trips frequently with your friends or family, an XUV should be a great choice.

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3. Car ownership cost

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‍On-road price is not the only thing to consider while deciding on a car budget.

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You should consider fuel, servicing/spare parts, and car insurance premiums.

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It may seem insignificant, but the constantly rising fuel price and inflation can lead you to miscalculate the overall ownership cost, derailing your monthly budget.

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Key Takeaway

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We hope you now have a fair idea of what are the things you should contemplate before buying a car. No matter when you decide to buy your vehicle, be it right after getting your first job or a few years later, make the right decision by factoring in every aspect.

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Be prudent in determining your new automobile budget, and never extend it unnecessarily, as this can throw your financial plans off track in the future.

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