Can You Afford a Car? Here’s How to Budget for Your First Vehicle

Author: Yatharth Singh Chauhan•Published on: 9/14/2025•5 min
Overview:Buying your first car is exciting. It’s a mix of freedom, comfort, and a touch of pride when you see it parked outside your home. But excitement can quickly turn into regret if you don’t budget smartly. Many first-time buyers focus only on the price tag of the car, forgetting about the other expenses that come with ownership. In India, where running costs, insurance, loan EMIs, and maintenance can add up fast, knowing how to budget for your first vehicle is just as important as choosing the right one. With the right planning, you can own your dream car without draining your savings or stretching your monthly budget too thin. This guide will walk you through practical new car buyer tips that are easy to follow, realistic for Indian buyers, and help you enjoy your new ride without financial strain.
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Start with a Clear Budget and Stick to it


Before you even look at cars, decide how much you can afford. A common rule is that your car’s total cost shouldn’t exceed 50–60% of your annual income.

  • Example: If you earn ₹8 lakh a year, aim for a car that costs ₹4.5 lakh–₹5 lakh on-road.
  • Remember: “On-road” means the price after adding RTO charges, road tax, and insurance.

Tip: Use online “car cost calculators” to get a realistic figure before visiting a showroom.


Decide on New Vs. Used Cars


For first-time car buyer tips, one of the smartest decisions you can make is choosing between a new and used car:


New Car

  • Pros: Latest features, warranty, better reliability.
  • Cons: Higher price, faster depreciation in the first 3 years.

Used Car

  • Pros: Lower purchase price, slower depreciation.
  • Cons: Possible hidden maintenance issues, shorter warranty.

Tip: If you’re on a tight budget, a well-maintained 2–4 year-old car can save you up to 30-40% compared to a brand-new model.


Plan Your Down Payment and Loan Smartly


Car loans can make ownership easier, but can also trap you in long-term payments if not handled wisely.

  • Down Payment: Aim for at least 20–30% of the car’s on-road price.
  • Loan Tenure: Shorter tenures (3–5 years) mean higher EMIs but lower total interest.
  • Interest Rate: Shop around – even a 0.5% difference can save you thousands.

Rule of Thumb: Your total car EMI + other EMIs should not exceed 40% of your monthly income.


Factor in Insurance and Registration Costs


Many first-time buyers forget these are mandatory:

  • Insurance: First-year insurance is often bundled with the car price, but check if it’s comprehensive.
  • Registration (RTO): Varies by state, usually 8–15% of the car’s value.
  • FASTag, Number Plate, Handling Fees: Small amounts but worth budgeting for.

Tip: Ask for a detailed cost breakdown before signing anything at the dealership.


Don’t Ignore Running and Maintenance Costs


Your budgeting isn’t over once you buy the car. That’s when the cost of ownership really begins.

  • Fuel Efficiency: Choose a car that gives at least 15–18 km/l for petrol and 20+ km/kg for CNG.
  • Service Costs: Check the average service bill for the model you want.
  • Repairs & Tyres: Keep an annual reserve for unexpected costs (₹5,000–₹10,000).

Tip: Small savings on fuel efficiency and servicing add up to big amounts over 5–7 years.


Think About Resale Value Early


Even if you’re not planning to sell soon, choose a model known for high resale value. Brands with good service networks and high demand retain value better.

  • Popular models from Maruti Suzuki, Hyundai, Toyota, and Honda often have better resale prices.
  • Avoid cars with high maintenance costs or low market demand. They depreciate faster.

Drive Away Without Financial Stress


Buying your first car is a milestone, but it’s not worth stretching yourself thin financially. When you budget carefully, you’ll enjoy your vehicle without sleepless nights over EMIs and fuel bills. Remember, the right car is one that fits your lifestyle and your wallet.


As a first-time buyer, if you follow these steps — from setting a realistic budget to accounting for the total cost of ownership — you’ll start your car ownership journey on the right track.


FAQs


1. How much should I spend on my first car?

Ideally, spend no more than 50–60% of your annual income on the car’s on-road price.


2. Is it better to buy a new or used car for first-time buyers?

It depends on your budget and needs. New cars offer reliability, while used cars are cheaper but may require more maintenance.


3. What is the total cost of ownership of a car?

It includes the purchase price plus running costs like fuel, insurance, maintenance, loan interest, and depreciation.


4. How big should my down payment be?

Aim for 20–30% of the car’s on-road price to keep EMIs manageable.


5. How can I save money as a first-time car owner?

Choose a fuel-efficient car, compare loan offers, maintain it regularly, and avoid unnecessary accessories.