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I will be shortly purchasing a car with help of a loan. Suppose my earnings per month is X, what should be the EMI [Equated Monthly Installment] limit ? Till now my monthly expenses are X/4 and the remaining was being invested in stocks or deposits or liquidated for some purchases.

Considering this is it bad if I purchase a car which would need me to pay up X/2 as EMI ?

(Kept the salary as X to make this question generic)

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The EMI ideally should not be there, i.e. 0. More so on consumable items like Car or any other white goods.

The thumb rule vary slightly from country to country; this is for India.

Having said that, the general thumb rule;

  • Total EMI [Across everything] should'nt be more than 50% of your Net Monthly Salary.
  • Car EMI should't be more than 15 - 20 % of your Net. The Tenor should ideally by 3 to 4 years and never 7 Years to met the 15%
  • Generally you should buy a Car that cost less than 50% your Gross Salary.

If your Gross Salary is 10 lacs, you should'nt buy a car costing more than 5 lacs. Thats the affordability index. So if you have 5 lacs in savings, just buy it using savings and don't take a Loan. It is not advisiable to buy a 10 lacs car buy using 5 lacs of savings and other 5 lacs of Loan.

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  • When you say 50% of gross salary you mean 50% for loan right ?(I mean remaining can come from saved deposits right ?) – GoodSp33d Jul 5 '14 at 5:20

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