Adesh Gupta, a scientist with the central government, has been trying to buy a car since he was transferred to Delhi two years ago.
Earlier, he wanted to buy a small car like a Maruti Alto, but after he got a salary hike a few months ago, following the implementation of the Sixth Pay Commission recommendations, he wants to buy a mid- sized car, price at about Rs 4.5 lakh.
“Public transport in the city is really bad. And if you have a family, then you just cannot do without a car. I plan to buy the car as soon as possible. It’ll make life easier for my wife and daughters,” says Gupta, a father of two.
While Gupta has a savings of Rs 1 lakh, he is not sure how much he should spend on the car, especially in these times of a downturn. His dilemma is compounded by the fact that he also plans to buy a house in the near future.
“I am trying to figure out how much loan I should take to buy the car. I do not know whether it would be wise to go for maximum finance. But then it might make the car very costly at the end of the day. Besides paying EMIs might get difficult if I buy a home in future,” he says.
It seems buying a car is a necessity for you.
Since you have limited savings, I won’t suggest you spend all of it is as down payment for the car. This is because you should always keep some liquid cash for contingencies.
You can look to break some fixed deposits that are earning you less than 9 per cent interest. You can use it as down payment because these are earning you less than what you would be paying as interest on your car loan (around 10 per cent).
I would suggest you to go for a car that meets your need and not stretch yourself too much. This is because you also need to save for the down payment of the house that you plan to buy in future.
You need to plan accordingly and ensure that when you buy a home, the combined monthly outgo on all your loans should not exceed 40 per cent of your take-home salary.