BORROWING THUMB RULES

THE COST OF YOUR HOME 3-4 TIMES

Your annual household income is the ideal cost of the home you can afford comfortably. Do not buy a house based on the EMI that you think you can manage. So, if you and your spouse earn Rs 30 lakh a year, you should spend Rs 90 lakh to Rs 1.2 crore

THE EMI YOU CAN AFFORD

It is best to be debt free, but to achieve your financial goal of owning a house, you will need to depend on a loan to buy it

30-35%

of your income should be the total EMI that you pay for all your loan liabilities, including home loan, personal loan, auto loan etc.

25-30%

Of your gross income should be the EMI towards home loan with the tenure of the loan as short as possible

5 YEARS

Prior to your retirement you should close all your debt obligations

Although borrowing has become easy and convenient, it is useful to know how much it you can afford to repay comfortably. There are a few benchmarks that can help you develop better borrowing habits in managing debt

HOW EXPENSIVE A CAR CAN I BUY?

A car, unlike your house, depreciates in value the moment you buy it. It means the value of the car goes down from the moment you drive it out of the showroom. For instance, if you buy a car that costs Rs 8 lakh on road, after 3-4 years, its value even on moderate usage and good maintenance is likely to be half the cost at which you bought it

40-50%

Of the annual income of the primary owner should be at most the cost of the car that you wish to buy. So, if your spouse needs to use the car more than you and earns Rs 20 lakh annually, the car you can buy should not cost you more than Rs 10 lakh

20-25%

Should be the down payment you make on the car you wish to buy, even though auto financiers encourage you to pay as low a down payment as possible

10-15%

Of your income should be the EMI you commit on the car loan and for tenure of four years or less