Short answer: The 20/4/10 rule: 20% down, max 4-year loan, total transport under 10–15% of take-home.
The 20/4/10 rule: at least 20% down, a loan of no more than 4 years, and total transport costs — EMI, fuel, insurance, maintenance, parking — under 10–15% of take-home. A car that fails any of the three is more car than the budget supports.
Why each part exists
The 20% down payment keeps you from being underwater, since a new car loses a substantial share of its value in year one. The four-year cap is a disguised affordability test: if the EMI only works over seven years, the car is too expensive, and you will be paying for it long after it has become ordinary. The 10–15% ceiling is because transport competes with rent and savings, and a car quietly consumes far more than its EMI.
The EMI is roughly half the cost
| Line | Typical monthly, mid-range car |
|---|---|
| EMI (₹8L loan, 4 years, ~9.5%) | ₹20,100 |
| Fuel (1,000 km/month) | ₹6,000–₹8,000 |
| Insurance (annual, spread) | ₹2,000 |
| Maintenance and tyres | ₹1,500 |
| Parking | ₹0–₹3,000 |
| Real monthly cost | ₹29,600–₹34,600 |
At a 15% ceiling, that total implies a take-home of roughly ₹2,00,000. People routinely buy this car on half that, and the shortfall comes out of savings.
The depreciation nobody budgets
A new car commonly loses 15–20% in the first year and around half its value by year five. That is a real cost, simply not one that appears as a monthly debit. A two-to-three-year-old car lets the first owner absorb the steepest part of it, which is the single largest saving available in this decision.
When the rule is too strict
If a car replaces ₹8,000 of monthly cabs, saves two hours a day, or is required for work, the comparison is not against zero. Run it against what it displaces. Just use the full cost from the table, not the EMI — the EMI is the part the showroom quotes precisely because it is the smallest honest number available.
Put numbers to it with the free budget calculator and emergency fund calculator — no sign-up, works on any phone.
Set the caps from this article as category budgets in Expense Tracker: Income Manager, and see a daily safe-to-spend number that updates as you log. No sign-up, no ads.
