How much car can I afford?

The 20/4/10 rule

• --20% down payment — pay at least a fifth of the on-road price upfront, so you’re never owing more than the car is worth.
• --4 years maximum on the loan — longer tenures make EMIs look small but cost much more interest.
• --10% of monthly income — EMI plus fuel, insurance and maintenance together should stay under about a tenth of your take-home pay.

It’s a guideline, not a law — but it’s a good one, because a car is one of the few big purchases that loses value every month while it costs you money.

An example

Take-home pay of ₹1,20,000 a month allows roughly ₹12,000 a month for all car costs. If fuel, insurance and service average ₹6,000 (work out your car’s running cost), that leaves about ₹6,000 for an EMI. Over four years, that supports a loan of roughly ₹2.5 lakh at typical car-loan rates — so with a 20% down payment, a car of around ₹3–3.5 lakh on-road. That’s often far below what the showroom suggests, which is exactly the point.

When to bend the rule

• --You drive for work and the car replaces significant cab costs.
• --You’re buying used, which avoids the steepest early depreciation.
• --Two incomes share the car — apply 10% to the combined take-home, if both genuinely use it.

If the rule says no, consider a cheaper model, a used car, or cabs for another year while you save a bigger down payment (how sinking funds help).

Frequently asked questions