Every Indian who rides a two wheeler has the dream of upgrading to a car. But with interest rates on a rise, for some of us this just might remain a dream unless we understand the concept of a car loan and how it impacts our pockets.
Currently interest rates on a car loan vary between 10 % and 13%. But these figures donít mean anything unless you co-relate them with your monthly income if you are planning to buy a four-wheeler. Maxurmoney will try and explain this to you to pave the way for your dream to become a reality.
The first most important thing for you to decide before you purchase your car is your budget. The rest of it depends on this:
1) Fix Your Budget- This is important even before you step into the showroom of the car dealer. Why? Because at the showroom the sales-person will try and push you to buy something for which you are unprepared. Sales tactics are such that if you show even a little hesitance you will suddenly find you are buying something which is going to burden our pocket by a lot more than you bargained for. In rupee terms it may not seem much right now but you are bound to feel the burden every month when you shell out the regular monthly installments. Also remember that every extra bit of cash you pay for a car ( a depreciating asset) reduces the amount available for investment in appreciating assets.
2) Interest Rates- Various factors affect interest rates considerably. The price of car is a primary factor. At the current base rate, the tenure of loan is also important. Currently interest rates are varying between 10-13%. Most of banks are also offering special floating rate schemes for different categories.
3) EMI Calculation- Experts believe that the total EMIs of all your loans put together should not be more than 50% of your income. Of this 50% , 35 to 40% should be reserved for a home loan. So the EMI for a car loan should not exceed 10-15 % of your monthly income.
| Monthly Net Take Home Income
( In Rs.)
| Ideal EMI Target(15% of income)
for 5 year loan (In Rs.)
| Down Payment 30% of new
car price (In Rs.)
Read our next article on car loan to find out more about the loan you can get and howÖ..
TO BE CONTINUED...