In today's time, buying a car has become a necessity and not a status symbol. To fulfill this need, people take auto loans from the bank. With this, they get a lump sum amount to buy a car, which they later pay through EMI. If you are also planning to buy a car in this new year 2025, then you should understand the formula of 50:20:04. With this formula, you will easily buy your favorite car and your loan will also be settled easily. The EMI of the loan will never become a burden for you.

Understand what is the meaning of 50:20:04.

Meaning of 50

50 means 50 percent of your income. Many times when we see many luxurious cars in the market, then the thought of buying them comes. In such a situation, a big loan has to be taken from the bank and a big EMI has to be paid which later affects your household budget. Financial experts believe that any person should keep his hobbies according to his income. If you want to buy a car, then you should not buy a car more expensive than 50 percent of your annual income. That is, if your annual package is 12 lakhs, then you should not buy a car worth more than 6 lakh rupees. Otherwise, your budget can go awry.

Meaning of 20

20 means the down payment of the on-road price of the car. Before buying a car, you must have at least 20 percent of the on-road price of the car, which you can give as a down payment. By making a 20 percent down payment, your loan liability will be reduced. After deciding the budget for the car, keep a 20 percent down payment amount ready with you.

Meaning of 04

In this formula, 04 means that the EMI of the loan amount you have taken from the bank should not be more than 4 years. Many times people increase the loan tenure to reduce the EMI. Increasing the loan tenure does reduce your EMI but the interest becomes very high, which means you are the one who suffers a loss. Therefore, keep the loan tenure to a minimum. In the case of buying a car or any vehicle, it should not be more than 4 years.

Disclaimer: This content has been sourced and edited from ZEE Business Hindi. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.