When to apply for a bank loan to buy a car?


When is the best time to apply for a bank loan for the purchase of a car? Here are some tips you should keep in mind.

Do you have to take out a bank loan to buy a car? There are many sides to this question and many opinions. Ultimately, however, the decision is yours, based on your own priorities, future goals, and current financial situation. Experts recommend that you avoid a situation where your car loan is eating away 30-40% of your monthly salary or net income. This will give you little respite from taking out other large loans or sudden credit, while leaving less room for savings at the same time.

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At the same time, in an ideal scenario, the car loan should represent a maximum of 10-15% of your total net income. It should ideally not exceed 20% even if you are eligible. However, there is a silver lining here – with an increase in income, your take home pay will increase, making the car loan amount a smaller portion of your monthly salary, giving you more room for savings and investments. First, calculate your mandatory expenses such as your monthly rent or mortgage, food, electricity. Thereafter, keep at least 10-12% of your income for investments in asset appreciation and growth and other means. What you have in hand is your real respite from loans.

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In this case, you can plan to buy a car by allocating that part of your monthly income to pay off IMEs. However, you will also need to provide for the down payment. You won’t get a 100% car loan and even if you do, it will only lead to high interest and exponentially higher monthly EMIs. Therefore, try to pay the recommended minimum 15-20% of the value of the car as a down payment. You should only apply for a car loan when you have saved that money and without hampering your other savings, emergency funds, etc. Cars depreciate assets whose resale value will be significantly lower than the prices paid to acquire them. So you need to invest something in appreciating assets in order to provide a buffer while paying off the car loan.

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Many people think that you should always buy a car with cash in order to avoid paying interest. It is a philosophy that many follow. However, for cars with higher prices, many believe that this is preventable because cars depreciate assets and it makes no sense to lock a large amount of money into something that will not earn you any return. Hence, it is better to invest the excess capital in avenues of investment and other assets that will pay you back and accumulate over time while servicing a car loan with monthly cash flow. regular according to this school of thought. Take things into consideration very carefully before applying for your car loan.

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