Buying a car is a significant financial decision, and one of the biggest mistakes prospective buyers make is not setting a realistic budget before making a purchase. Many people focus solely on the showroom price of the car without considering the total cost of ownership, which includes various additional expenses beyond the sticker price. To help you avoid financial stress and make an informed decision, here are the key factors you should consider when setting your budget for your next car.
Consider the on-road price, not just the ex-showroom price
The ex-showroom price is the amount the dealer charges for the car, but it excludes several essential costs such as registration fees, taxes, insurance, and handling charges. These additional costs are bundled into the on-road price, which is the actual amount you pay to own and drive the car legally. The difference between ex-showroom and on-road price can vary significantly depending on the car’s category. For instance, a budget car might have a difference of a few tens of thousands, whereas luxury cars can have a difference of several lakhs. Always base your budget on the on-road price to avoid surprises.
Calculate your EMI carefully
If you plan to finance your car, calculating your monthly EMI (Equated Monthly Installment) is critical. Many online EMI calculators allow you to input the loan amount, interest rate, and tenure to get an estimate. It is advisable that your EMI should ideally not exceed 10-15% of your monthly income to maintain financial balance. For example, if your monthly income is Rs 1 lakh, your EMI should be kept below Rs 15,000 to avoid overburdening your finances.
Factor in insurance costs
Insurance is a mandatory expense when buying a car. According to current regulations, new car buyers need to purchase a minimum three-year insurance policy. The insurance premium increases with the value of the car, so higher-priced vehicles come with higher insurance costs. This recurring expense should be factored into your monthly budget to avoid any cash flow issues.
Account for fuel expenses
Fuel cost is a major part of your ongoing car expenses. Although the price gap between petrol and diesel has narrowed, it still affects your choice between variants. When budgeting, consider the car’s fuel efficiency claims from the manufacturer and adjust for real-world conditions, which usually means lower mileage. Calculate your daily commute, estimate monthly fuel consumption, and multiply it by current fuel prices to get an accurate idea of monthly fuel costs. This exercise helps you decide whether a petrol or diesel variant makes more economic sense for your needs.
Include service, maintenance, and repair costs
Owning a car involves regular servicing and occasional repairs, which add to the total cost of ownership. Before buying, inquire about the service schedule and costs, spare parts availability, and the car’s overall reliability. Checking online reviews and asking sales representatives will give you a better understanding of the expected maintenance expenses. Including a monthly average of these costs in your budget will help you avoid unexpected financial burdens later.
Summary and practical rule for budgeting
Fixing a budget for your car purchase is essential for a smooth and stress-free ownership experience. If you are financing your car, you can follow the 20/5/15 rule as a helpful guideline: make a 20% down payment, keep your loan tenure within 5 years, and ensure your EMI does not exceed 15% of your monthly income. While these numbers aren’t rigid, they offer a sensible framework to keep your car expenses manageable.
