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How Much To Spend On A Car In India: A Practical Guide


by Mahindra Finance


April 17, 2024


4 mins read


Are you dreaming of buying a new car in India? Purchasing a car is a significant financial decision, and it's essential to determine how much you should spend on this depreciating asset. Whether you're planning to buy a hatchback, sedan, or SUV, understanding your car loan budget is crucial. 

In this blog post, you'll explore the key factors to consider when calculating your budget for a new car. From the rule of thumb to choosing the right size and considering ongoing costs, we'll provide practical tips to help you make an informed decision. So let's dive in!

Determining Your Car Loan Budget: Key Factors to Consider

1. The Rule Of Thumb

When it comes to determining your car loan budget, the rule of thumb is not to spend more than half of your annual income on a new car. This car-buying rule has been proved effective. For instance, if your annual income is ₹10 lakhs, ideally, your budget should be around ₹5 lakhs. However, it's crucial to remember that the final price of the car includes additional costs such as road tax, registration charges, and insurance premiums. So be sure to consider these expenses when determining your budget.

2. Consider On-Going Costs

Apart from the purchase price of the car, there are several ongoing costs that you need to factor into your budget. These include car insurance premiums, maintenance fees, fuel costs, service and spare parts expenses, and more. It's essential to calculate these costs accurately to avoid any surprises down the line. Using an online car EMI calculator in India can help you estimate your monthly expenses and plan your car loan budget accordingly.

3. Avoid Negative Compounding

While you may be eligible for a higher car loan amount, it's crucial not to stretch your budget beyond what is necessary. Taking on a larger loan means paying higher interest rates, which can significantly increase the total cost of your car purchase. Remember, just because you can avail of a particular loan amount doesn't mean you can afford it comfortably. Be cautious and prioritise affordability over extravagance.

4. Choose The Right size

The size of the car you choose plays a significant role in determining its price. Smaller cars such as hatchbacks and sedans are generally more affordable than larger SUVs and MUVs (Multi Utility Vehicles). Consider the number of people in your household and your functional requirements when selecting the right size of the car. If you don't need a bigger vehicle, it's best to opt for a smaller, more compact model that fits your budget.


Calculating your car loan budget is essential before making a significant purchase. By considering factors such as your annual income, the rule of thumb, ongoing costs, and the right size of the car, you can make an informed decision. Use online car EMI calculators in India to estimate your monthly expenses accurately. Car rule can help you understand the finance you should put in to buy a car.

And remember, if you're not financially ready yet, it's okay to postpone your car purchase until your situation improves. When it comes to financing your car purchase, Mahindra Finance offers car loans tailored to your needs. Their competitive interest rates and flexible repayment options can help you realise your dream of owning a car without straining your finances. So take control of your car loan budget today and drive away with confidence!


Q: Can I afford a car without taking a loan?

A: Yes, if you have sufficient savings or can comfortably allocate a portion of your monthly income towards car expenses, you can consider purchasing a car without taking a loan.

Q: How can I calculate my monthly EMI using a car loan EMI calculator in India?

A: To calculate your monthly EMI, enter the loan amount, interest rate, and tenure into the car loan EMI calculator. It will provide you with an estimate of your monthly payments.

Q: What factors affect the interest rate for a car loan?

A: The interest rate for a car loan depends on various factors such as your credit score, income stability, existing debts, and the type of vehicle you wish to purchase.

Q: Is it better to lease or buy a car in India?

A: Leasing and buying both have their pros and cons. Leasing allows for lower monthly payments but doesn't offer ownership at the end. Buying provides ownership but entails higher costs upfront.

Q: How does my credit score impact my eligibility for a car loan?

A: Your credit score is an important factor that lenders consider when determining your eligibility for a car loan. A higher credit score increases your chances of securing favourable interest rates and loan terms.

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