A car is unquestionably a depreciating asset; its value begins to decline the moment you purchase it, and a new vehicle comes with many expenses, including maintenance, parking, fuel, and other recurrent costs.
Therefore, you must evaluate the following five factors before purchasing a car:
✅️50% Rule
The price of a vehicle must be less than fifty percent of one’s annual salary.
Example
If your annual income is 15 lacs, you can afford an automobile worth 7.5 lacs. If you desire to purchase a Mercedes-Benz costing 72 lacs, you are certainly exceeding your financial means.
✅️20% Rule
The guideline specifies that you must make a down payment of at least 20% of the vehicle’s on-the-road price. 20% of the total vehicle price is required as a down payment because longer-term loans have lower monthly payments. In addition, by extending the duration of the loan’s interest, the lender earns additional money.
✅️10% Rule
10% Rule- Keeping your total transportation costs to less than 10 percent of your monthly income can help ensure that a car does not dominate your budget, leaving room for other expenses. The value of a vehicle decreases by at least 15% the instant it leaves the dealership.
✅️Four-Year Rule
A four-year auto loan can assist you reduce the amount of interest you pay because the loan would be paid off reasonably soon. Even if the monthly payments are lower, the longer the loan, the more interest you will end up paying. Attempt to minimise the loan period as much as possible based on the monthly payment amount you can afford.
✅️Long or Short Drive?
If you frequently travel long distances, you should strongly consider purchasing a car and keeping it for at least ten years.
In addition to this quantitative calculation, another factor that favours car ownership is the comfort and ease of not having to rely on something else to move, especially in times of emergency or when time is limited.
Occasionally, you may need to rush to or from the office, and unanticipated travels can arise at any time. In such situations, relying only on taxi service could be problematic, since the app could malfunction or the drivers could go on strike, leading to the dreaded “surge.” However, when attempting to get a vehicle, you should not go overboard and wind up with one that is prohibitively expensive.
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