Buy Your dream Car: The 20-4-10 Formula, Income and Insurance

You want to plan your dream car. You are seeing cars on the internet and on social media. But how will that car come to your house? How to get your dream car?

So when you have to plan finance, you have to plan the expenses of the car.

But which car should you buy? You want to buy a Ferrari. But can you buy a Ferrari? And if you can buy it, then is there any rule or formula for it?

In this article you are going know about the formula.

Reasons to Buy a Car

Before diving into the formula, it's important to first clarify your objective.

Because what happens is that people are not able to show their bank balance. To show their status in the market, to show in the society, they buy expensive cars as their own. This is why people buy iPhones.

The point is: Whichever car you buy, that car should be 50% of income. Maximum of your annual income should be less than that.

It is very important. So if you are buying a second hand car, then the rule will remain the same.

New Car Vs. Second Hand Car

The market of second hand cars has become very big. New cars are being sold and old cars are also being sold at the same speed in the market.

If you are going to buy a car. Just suppose, it's WagonR. But instead of a WagonR, you are getting second hand Honda City at the same price.

So should you buy WagonR or Honda City? Now many things start from here.

Most importantly, why are you buying a car? Look, a car is a utility for us. The mistake that people generally do is that they first buy a new car and after that when they cannot afford it's service cost, they sell it in second hand market. Which you do not have to do if you are going to buy a second hand car.

Second hand car buying guide:

People sell cars when the car is 3-4 years old or more than that. That means there is a defect in it. Either there is an accident of the car or there is an engine problem. There can be a lot of problems, it is a machine.

So, you have to see the service record because these dealers sell it by backing the meter. Means, car has been driven 100,000 kilometers but they will show that it has been driven 40,000 kilometers only.

Okay, now it's time for the formula. The formula is:

20-4-10 Formula

So what does the formula says? The formula says 20, means 20%.

1) 20% Down Payment : You should have money to make a down payment.

Explanation: Just suppose, you have chosen a car worth 1 crore. You will bring a Mercedes or BMW worth 1 crore. If it is worth 1 crore, then you should have 20 lakhs first. If you are planning a car worth 10 lakhs, then according to 10 lakhs, if we put 20%, then 2 lakhs. Be there, if you don't even have that much, then you cannot afford a car.

2) 4 Years: 4 means, 4 years of EMI. When you get an EMI, then you don't have to get that EMI for more than 4 years.

3) 10% Income: The car has a lot of expenses, such as service insurance cost, and the fuel cost. In fact, some extra charges too. You don't know that you are driving a car, so there are some expenses in it.

Whatever expenses will come, you will do its planning now. It should not be more than 10% of your monthly income.



Planning and Calculation

Now its planning and calculations, your 20% down payment.

Let's take an example that you are planning a car worth 10 lakhs. So now you have given 20% in down payment. So you will need a loan of 8 lakhs.

If you are an ordinary citizen, then you will get around 9% interest. It can be 8.5, it can be 8.5, it can be 9.5. So I have taken an average.

You will take a tenure of 4 years. So if you calculate it here, then your EMI is approximately 19,900-20,000.

Now think if you earn 40,000 rupees a month. So, you will be able to afford a loan of 20,000. And in 20,000, you have no liability of the house.

Most Important point is that its expense should not be more than 10% of your salary. If someone is earning 40,000, then 10% will be 4,000 rupees.

But you understand how much expenses are going to come on it.

No.1 service: How much will be the service of a car worth 10 lakhs? The more the car is worth, the more your service will come. So if the car is worth 10 lakhs, then assume 10,000-1,2000. You may have to do servicing more than once a year. If you do more than once a year, then you will have to assume that 24,000 rupees. Note: fuel cost not included. Assume fuel cost 10,000 rupees. Total expenses 1,20,000 in four years. So, calculate it in monthly.

And third, which people forget and that is insurance.

Insurance: If you are buying a new car, then insurance is necessary. If you are buying an old car, then also it is necessary. Many people do not take the first party insurance. Instead they take insurance from the third party.

If you have a car worth 10 lakhs, then assume a minimum of Rs. 24,000 will be your insurance cost. Means, Rs. 2000 on insurance monthly.

• Rs. 24,000 for service. So you spent Rs. 2000 for monthly expense service for the car.
• Rs. 10,000 your fuel cost.
• 1000 for miscellaneous. Because there are many things in the car. There are small-small wear and tear. So, put Rs. 1000 for miscellaneous.

Conclusion: If you earn Rs. 1.5 lakhs here, then you can afford this car in this way.

________________________________________________________Thank you !