Car budgeting guide?

[maynigam]

Hey guys

I wanted some advice on the financial aspects of buying a new car in today's world.
1. How to calculate a car budget that makes financial sense?
2. Loan Vs Cash payment
3. Any other smart ways to minimise the effective cost of ownership.

Looking forwards to some suggestions. Thanks

 

[sxchzy]

Hey guys

I wanted some advice on the financial aspects of buying a new car in today's world.
1. How to calculate a car budget that makes financial sense?

50:30:20 rule
50 % of your after tax income goes to your family obligations
20% to your debt repayments
30% should be your disposable income
so try to manage your emis within 30% of your monthly salary

2. Loan Vs Cash payment

if you have liquid fund lying around then go via cc payment and reap the benefits
otherwise if you would have to sell shares and purchase it wouldn't make much sense as it would get taxed

3. Any other smart ways to minimise the effective cost of ownership.

Looking forwards to some suggestions. Thanks

 

[CARDBITRAGE]

1. How to calculate a car budget that makes financial sense?

That is very personal. IMO, if you are saving and investing 60% of your income, do as you wish with the rest. So if you are buying on EMI, find a car you can buy with the rest 40% disposable income(after deducting the amount required for your regular monthly expenses). If you are buying it with your savings, never put more than 30% of your savings(excluding your emergency fund) into a depreciating asset. If you're already servicing any existing debt that is eating away a substantial portion of your income, forget about getting a car for some time.

2. Loan Vs Cash payment

Liquidity if available, you can consider. But if you have a decent credit profile, you can just take a loan. Invest the liquid money to cover the interest on the loan.

3. Any other smart ways to minimise the effective cost of ownership.

The smartest thing to do would be to buy a well-maintained, low-run preowned car that has already taken a massive depreciation hit. But if you are not aware of the risks involved in owning a preowned car and do not have the knowledge of inspecting used cars, don't consider this option.
If you're buying new, consider cars that do not depreciate much in the market. A few models of Maruti, Toyota and Hyundai hold their value really well over time. And they also have very low maintenance costs.

 

[sidp]

Hey guys

I wanted some advice on the financial aspects of buying a new car in today's world.
1. How to calculate a car budget that makes financial sense?
2. Loan Vs Cash payment
3. Any other smart ways to minimise the effective cost of ownership.

Looking forwards to some suggestions. Thanks

Buying a new car is more of a aspiration/show off than necessity.
Let's say you buy a 20L car. For new car you must add on rsa+engine cover+0 dep which will be min 40-50k/Yr.

Look at fuel price. You'll be spending at least 7-8rs/km just on fuel. Maintenance/service cost depends on brands. on an average consider 15k/yr for 10k running. Low for honda/toyota. High for german/korean. There is hardly any "service" in maruti/tata/mahindra.

Plus the emi. For long term loan, calculate how much you'll pay interest. If you later plan to pre close, there is preclosure fee.
As your car is your liability in case of accident. So you need to be careful of that. If you have 0 dep, then you have to pay only a small amount. But without it, you may have to pay significant amount from your pocket.

You'll wash your car atleast once a month. Might do detailing once a yearIf you do ppf, youll spend 1-1.5 L. Again for a small accident, you have to change ppf of whole part. Can't do patch work. FYI replacing ppf(paint protection film)cost you more than the paint it is supposed to protect. Might buy some accessories. All this won't be covered in insurance.

Let's say you use it for 10yrs. So 2LPa depreciation. If you sell off after few years, depreciation will be higher.

So just a basic calculation, your fixed cost of buying a car will be around 3LPA, variable cost depends on usage. But would be around 1Lpa .
But the worst part is when your brand new car will be hit by some drunken idiot, You ll send your car to workshop. It could be weeks before you get that car, during that time you are still paying fixed cost like emi and insurance etc.

We also don't know what will happen to ic cars. How much new restrictions/tax will govt impose on it.
So unless you have high running (20k/year), it makes no sense to buy a brand new cars. Buy a 2nd hand honda/toyota/ford. Its safe, reliable, affordable, good service.

 

[maynigam]

That is very personal. IMO, if you are saving and investing 60% of your income, do as you wish with the rest. So if you are buying on EMI, find a car you can buy with the rest 40% disposable income(after deducting the amount required for your regular monthly expenses). If you are buying it with your savings, never put more than 30% of your savings(excluding your emergency fund) into a depreciating asset. If you're already servicing any existing debt that is eating away a substantial portion of your income, forget about getting a car for some time.

Liquidity if available, you can consider. But if you have a decent credit profile, you can just take a loan. Invest the liquid money to cover the interest on the loan.

The smartest thing to do would be to buy a well-maintained, low-run preowned car that has already taken a massive depreciation hit. But if you are not aware of the risks involved in owning a preowned car and do not have the knowledge of inspecting used cars, don't consider this option.
If you're buying new, consider cars that do not depreciate much in the market. A few models of Maruti, Toyota and Hyundai hold their value really well over time. And they also have very low maintenance costs.

Thanks. That makes a lot of sense.

1. Yes. Saving more than 50%. No debt. But it's business and business can be erratic (3 year old). I think it's better to wait few years.

2. Loan definitely seems to be a better option

3. How about Tata and MG?

 

[CARDBITRAGE]

1. Yes. Saving more than 50%. No debt. But it's business and business can be erratic (3 year old). I think it's better to wait few years.

If you're buying it in the name of your business entity, then you can claim the depreciation benefits. If you want to buy a car you can DM me on the specifics and I can help you in my free time.

2. Loan definitely seems to be a better option

Yes. Go with the loan, the interest is a tax deductible if you buy it in your company's name.

3. How about Tata and MG?

The old Tatas were gold. New ones are riddled with niggles. I would stay away if I were you. There are innumerable reports of owners facing multiple issues with the electronics on the new Tatas. A quick search on YouTube will pull up a large number of complaining customers.
MGs are great but have very poor resale value. But that means you can pick a great example on the used car market.