Car – the one word that every boy dream about during his childhood and every man dream of owning it. Even after getting the 1st salary, a man starts dreaming about getting a nice car and upgrade to a new social status.
Many people have a different choice when it comes to cars. And car price could be from 3 lakhs to 3 crores. And in today’s fast growing world, one really needs a car for his family and his work purpose; a busy businessman cannot afford to travel by public transport if he has multiple meetings to attend.
A car is a matter of lifestyle and luxury or social status for some there is no doubt there.
But have you thought that your car is keeping you poor? Well, not exactly poor but probably less rich than you should if you did not own a car.
Let’s see how.
A car is a kind of thing, to buy it we have to take a loan from the bank and pay interest on a loan, We have to spend money to run it and to maintain it, and it depreciating in value day by day. In fact, it depreciates from 10% to 30% right after you just drive off from the showroom.
After 5 years car depreciates in value more than 60%.
There are many options available for cars in India. Let’s see hot selling or successful models of India, Hyundia i10 or Maruti Suzuki Swift. Both the car have prices from 4.5 lacs to 7 lacs for a base model to top end model respectively.
Most of the middle-class people will go for car prices between 4 to 7 Lacs. Intermediate model costs around 6 lacs. After paying 20 % down payment you are taking a loan of approx. 4.80 lacs. Standard car loan interest is 9%. Now calculate the total amount you have to pay back to the bank in the tenure of 5 years.
EMI calculator shows EMI of about 10,000 Per month. You are paying back INR 6,00,000 to a bank, plus DP you had already paid earlier, so the total car cost to you is 7.20 lacs.
Now calculate insurance per year, from 1st year to 5th-year total insurance could be 60 to 70k, and if you extend to 10 years then it could be more than 1,00,000 INR.
How can you forget about regular servicing of a car, typical service cost not less than 4000 to 5000. Optimized services per year are 2, the annual expense of services is 10000. For 10 year it is 100000 INR.
Now the biggest expense, which is petrol. On an average middle-class family or a service doing employee or a small business owner drives approx. 10,000 to 12,000 km per Year. This gives you the yearly expense of Petrol around 50,000 to 60,000 INR. For 10 years period, it is 6,00,000 INR (If you are running your car only on petrol).
Normally after 5 years of using a car, it starts giving you maintenance of Battery, tires, AC, or Radiator, Shock absorber, let’s assume total maintenance you did was worth of 75,000.
Now calculate total 7,20,000 + 1,00,000 + 6,00,000 + 75,000 = 14,95,000/ – INR.
This way I have calculated on my expense of a car, for different people it could be different, but more or less depending upon your use.
Imagine you are spending approx. 7.5lacksextra on a car of 6 lacks. Given that you use the same car of 10 years, if you sell the car in between and buy a new one then it is again more expenses to you.
You are spending 15lacks over the time period of 10 years on something which is depreciating in value. It is not going to get any return.
If we break down per month expense then it is approximately 12500 INR. If you can invest 12500 INR per month in any SIP then imagine return after 10 years. It could be around 35,00,000 INR if we calculate the average interested per annum 15, mind well that some Mutual Funds give the return of about 18 to 23% too.
Some may argue that you can’t simply compare between an asset and a liability. But do you think your car is keeping you poor? One way you are spending 15lacks on a car in 10 years, another way you are gaining 35lacks after investing the same amount over the same period of time. But as I said having a car is an essential thing nowadays. We need it for many purposes, so what can be done?
- Buy a second hand good conditioned car to save on the money. Buy from a reliable source so you do not have to worry about maintenance later on.
- Buy in cash if you can afford it, you do not have to pay interest on the loan at least.
- Buy car when it is actually needed, maybe when you are married, or just start saving in SIP when you get your first job.
- Try to use 2 wheeler if you have a job inside city only that saves up on fuel cost a lot. (Do not forget to wear a helmet.)
- Just start investing early, see the magic of saving, invest like 5 to 6 years and then by car from that, or even buy a 2nd hand car and keep investing.