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)


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.

  • 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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