Confused about the math of buying a car? Go 20-4-10!

12 Sep 2022

Buying a car can mean different things for different people.

For some, it is aspirational, while for some others, it is about convenience. It could be a status symbol for someone, and simply practicality for another person.

One thing, though, that may be common is the cost – buying a car is a major expense for most people. This means, that one also needs to plan the finances needed for it.

Because of the aspirational aspect and the status symbol associated with owning a car, a lot of people often tend to go overboard when planning to purchase a car.

How can you avoid that?

By using the 20-4-10 guideline!

What’s the 20?

This guideline assumes that one is taking a loan to buy their car and says that you should make a down payment of at least 20% of the total value of the car.

So if your dream car is for ₹800,000, your down payment should ideally be about ₹160,000.

What’s the 4?

The tenure of your car loan should be a maximum of four years.

Keeping the tenure of the car loan limited can help in capping the total interest payments you would make.

What’s the 10?

Not more than 10% of your monthly income should be used for transportation costs – this includes your monthly loan repayments, the cost of fuel, insurance and maintenance costs. 

What one must keep in mind, though, is that this rule may not be tailor-made for everyone who is looking to purchase a car. It should be used as a guideline, and may be helpful for you to keep your expenses in check.

 


 

This article is for information purposes only. The information provided herein is derived from public sources, believed to be from reliable sources. However, no representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. Views expressed herein involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein. Kotak Mahindra Mutual Fund/ Kotak AMC is not indicating or guaranteeing returns on any investments. Past performance may or may not be sustained in future. Readers should seek professional advice before making any investment-related decisions and alone shall be responsible for any decision taken.

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© Kotak Mutual Fund.2022
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
© Kotak Mutual Fund.2022
Mutual fund investments are subject to market risks, read all scheme related documents carefully.