The 20/4/10 Rule for Buying a Car in India: Why That ₹18L SUV Costs ₹35 Lakhs
Calculate the true cost of buying a car in India using the 20/4/10 affordability rule. Compare 4-year vs 7-year car loans, depreciation cliffs, and SIP opportunity costs.
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Frequently Asked Questions (FAQs)
What is the 20/4/10 rule for buying a car in India?
The 20/4/10 rule is a golden personal finance guideline: (1) Pay at least 20% down payment in cash, (2) Finance the vehicle for no longer than 4 years (48 months), and (3) Keep total monthly car expenses (EMI + Insurance + Fuel + Maintenance) under 10% of your net monthly take-home salary.
Why should I never take a 7-year (84-month) car loan?
Car loans longer than 4 years cause "negative equity," where your car depreciates faster than you pay down principal. Furthermore, a 7-year loan at 9.5% interest adds nearly 40% in extra interest paid to the bank compared to a disciplined 4-year tenure.
What is the real cost of owning an ₹18 Lakh SUV over 5 years?
An ₹18 Lakh ex-showroom SUV requires ~₹21.5 Lakhs on-road price (RTO + Insurance + TCS). Factoring 5-year loan interest (₹3.5L), fuel (₹4.5L), comprehensive insurance renewals (₹1.8L), and servicing (₹1.5L), the total 5-year cash outlay exceeds ₹32 to ₹35 Lakhs, while the car resells for only ~₹9 Lakhs (a 50% depreciation loss).
How much CTC do I need to afford an ₹15 Lakh car comfortably?
Under the 10% monthly income cap rule, an ₹15 Lakh car (with ~₹28,000 EMI + ₹10,000 running costs = ₹38,000/mo total vehicle expense) requires a net monthly in-hand take-home salary of at least ₹3.8 Lakhs, or an annual CTC package of approximately ₹50 LPA.
Relevant Financial Calculators
Put these concepts into practice using our free, instant financial calculators: