Things to look before buying a car

When should you buy a car?

The question is simple according to me when you have a budget for buying almost 2 cars and enough source of income then go and buy a car otherwise not. Conditions Apply*

Here are the few points in support of my answer:                                                                                                                                                Depreciating Item

A car is a depreciating item and if you are purchasing the car for personal use then ready to lose money as time passes because the value of your car is decreasing each day!!

Recurring Expenses

Remember you are not purchasing the car instead you are purchasing the car and a recurring expense both.                                                                                                                                          A car carries some recurring expenses with it for example insurance, fuel, maintenance, Taxes etc and all are recurring means you have to pay repeatedly.                                                                                                                                                                  Interest Expenses

More than 90% of the car purchaser purchase the car on EMI means by taking a loan from a bank or private finance and as a result, they end up paying the interest on the finance amount till they paid the loan in full.                                                                                                                                   I know the interest rates are not very high in case of a car loan but if you sum the paid interest amount of your car loan account the figure will shock you, believe me, give a try.

Calculating the actual cost of car

Every person wants to buy his/her dream Car and in today’s online world it’s one click away from seeing hundreds of options online and making a comparison between them before buying it.

Did you notice the websites which show you the prices and features they always show you the Ex-showroom prices in order to make the price more attractive and mouthwatering?

Let’s take the example of the most popular car in India Swift Dzire and calculate its total cost

Swift Dzire

Swift Dzire

As you can see from the above picture the price has increased from 6.57 lakh to 7.45 Lakh and the accessories cost and finance cost is not included in it and if you are buying a car on EMI then the total cost will go up to approx 10 lakh (Including the total interest amount paid in fiscal years).

So, if you are seeing the cost of the car as “X” then assume it’s going to cost you 1.4 times X.

You can also calculate for yourself by going to some car price checker website i.e gaadi.com  cardekho.comcarwale.com

List of Car expenses which you must look at before buying

 

  1. Driver Cost (Zero in case of self-driving)
  2. EMI Payment (Zero in case of purchasing from own money)
  3. Fuel Cost (Not going to be zero)
  4. Insurance Cost (Not going to be zero)
  5. Maintenance Cost. (Not going to be Zero)

is car an asset or liability?

 

The answer is it depends on for which purpose you are buying.

When you buying the car for business purpose or for renting purpose then it is an asset and if you are buying it for personal use or for status maintain in society then its a liability.

Let’s understand both points one by one

When as an asset:-  if you are planning to buy a car for earning purpose by renting it out or by any other means then it’s a sure shot good decision because creating a source of income from your investment is always a good financial decision but be careful if you are buying it by taking a loan!!!!

I am not saying that it’s always a bad decision if you buying the car by taking a loan but you have to check the net cash flow before taking any decision for example

Let’s say you buy a car having a price $20000 by making a down payment of $5000 and rest financed and paying the Monthly EMI of approx $500 for 3 years and assume all other expenses of approx $100 per month on an average totaling $600 per month.

Now if there is an opportunity of making an at least $800 per month then it’s a good decision because there is a net positive cash flow otherwise avoid the buying. You can also calculate EMI from here in order to take a different figure.

When as a Liability:- If you are buying the car for personal use or for making the vacation trips or for show off then your car is the liability because you are not earning from your car and there is net negative cash flow,

it means that you have to pay for all the expenses from your salary or from your other source of income.

Diseal Vs Petrol Car

 

In India Car purchaser generally think too much before selecting between the two options (Diseal or petrol) but by reading below you will get your point clear.

DieselPetrol
Diesel cars have better mileagePetrol cars have much Less Mileage than diesel cal
Diesel is cheaper than petrolPetrol is expensive
More powerful engineLess powerful Engine
Diesel Cars are expensive then petrol carsPetrol Cars are cheaper than Diesel cars
Diesel cars have poor peak-up than Petrol cars Petrol cars have excellent peak-up
Diesel cars have an average life of 6-8 yearsPetrol Cars have an average life of 10+ years
Diesel cars need heavy maintaintancePetrol car have smaller maintenance cost
Diesel cars produce Air Pollution Petrol cars produce less air pollution than diesel cars

From the above table, you can easily notice that Diesel cars have only two advantages i.e Low running cost (due to better mileage and diesel price) and powerful engine

but Diesel cars are slightly more expensive but if you calculate running cost petrol cars are still cheaper in long run.

So, if you have to travel too much means you have requirement of traveling almost every day (i.e you are putting the car on rent or for taxi purpose or for business purpose) 

then go for Diesel car and if you want to use the car for personal use means less traveling then go for a petrol car.

Also, read

 

 

Leave a Reply

Close Menu