What is the Car Affordability?
The widely used 20/4/10 rule says: put at least 20% down, borrow for no more than 4 years, and keep total vehicle costs — EMI plus fuel, insurance and servicing — under 10% of gross income.
The mistake most buyers make is budgeting only the EMI. Running a car in India costs ₹6,000–15,000 a month before the EMI, and that is the number that breaks budgets.
Formula & worked example
Available for EMI = Car budget − running costs
Car price = Loan supported by that EMI + down payment
Worked example: ₹1,00,000 income with a 15% cap gives a ₹15,000 monthly car budget. Subtracting ₹8,000 of running costs leaves ₹7,000 for the EMI, which at 9.5% over 4 years supports a loan of about ₹2.91 lakh. With ₹3 lakh down, the affordable car is roughly ₹5.9 lakh — well below what most buyers in that income bracket actually purchase.
How to use this car affordability calculator
- Enter take-home income, not CTC.
- Enter your available down payment — at least 20% of target price.
- Keep the total budget at 10–15% of income.
- Estimate running costs honestly: fuel, insurance, servicing, parking.
Smart tips
- Cars are depreciating assets. A car loses 15–20% of value in year one and about half by year five.
- A 4-year loan on a 20% down payment keeps you from ever owing more than the car is worth.
- Insurance, servicing and tyres typically run 4–6% of the car's value per year.
- A 2–3 year old car offers the best value — the first owner absorbed the steepest depreciation.
- If the affordable price disappoints, save six more months rather than stretching the tenure to 7 years.
Frequently asked questions
What is the 20/4/10 rule for buying a car?
20% minimum down payment, maximum 4-year loan, and total car costs (EMI plus running) under 10% of gross income.
How much car can I afford on a ₹1 lakh salary?
At a 15% budget with ₹8,000 running costs and ₹3 lakh down, roughly ₹6 lakh. Many buyers stretch to ₹10–12 lakh, which strains the budget.
Should I buy a new or used car?
A 2–3 year old car avoids the steepest depreciation and often costs 35–45% less than new, with most of the useful life remaining.
Is a 7-year car loan a bad idea?
Usually yes. It lowers the EMI but you pay far more interest and stay in debt long after the warranty and best years have passed.
Want the theory behind the numbers? Read our car buying guides on the Money Blog.