Can you afford a new car?


What can feel better than going to a New Car showroom and driving out on a new set of shining wheels?

That blue sedan or the red hatchback which you always wanted to buy…is now yours! Wow! But just hold it. Have you considered the real and total cost of owning a New vehicle? Did you know that the highest depreciation of a new car is in the first few months. If a month later you decide to get rid of your car, be ready for a 40% discounted price!

Here is a checklist :

1. Do you have enough money to make a down payment? – If you have a decent form 16 today your banker is more than willing to give you an auto mortgage. However the higher the down payment that you do make, the better the terms that you can get from the banker.

2. Have you considered the price of fuel: The latest price hike in India has been almost Rs. 8/ l. This is not insignificant by any stretch of imagination. Also consider the future price of petrol and be willing to pay out say Rs. 3-4000 per month on fuel. This could be as high as your auto EMI.

3. Consider the cost of Insurance: A comprehensive insurance on your car will cost you about 5% of your vehicle costs. If you think this is high, welcome to US. Insurance is about 10% of the cost of the vehicle. Even in India expect insurance rates to GO UP, not down.

4. Other ‘friendly’ users: If you have a new set of wheels will your friends want to take it for a spin? Please provide for friends, brother, sister, brother in law….wanting to borrow. Here the costs of depreciation, fuel, RISK, …all of this could hurt you, hope you have considered it.

5. If you are a new driver be ready for tickets for traffic offences.

6. Sadly I do not think we have a TCO kind of a site which tells you the REAL TOTAL COST OF OWNERSHIP of a car….so you need to use your own past data, guesswork, etc. to know the exact cost.

7. As a thumb rule add 30% to your fuel costs + emi as a ‘load’ while considering a car.

For example if you are paying Rs. 5000 as EMI, and Rs. 4000 as fuel charges, your monthly outgo could be 5k+4k +2700 = 11,700p.m however,

For example if you are paying Rs. 20,000 as EMI, and Rs. 20,000 as fuel charges….you may end up paying about Rs. 8000 …

However your own past data might be far more useful…

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7 Responses to “Can you afford a new car?”

  1. Here is brief write up- and cost of travel in new small car…

    Rajesh’s Company announced bonus of 75 K, Probably this surplus cash has revived the forgotten dream of owning a CAR. He always wanted to buy a car as his father could not own one.
    Here is the Scenario: Rajesh in all has 1 lakh Rupees with him. This is inclusive of the bonus money. He would go for loan for rest of the money. He is open for Used or New Car. 5 lakh is his budget if he opts for new car. He plans to sell off the car after 3 years.
    Let’s find out which option works best for Rajesh, Keeping emotional quotient of “MY FIRST NEW CAR” aside..

    •Considering that he has Cab facility, he would be using Car mainly over weekends which would not exceed 150 KM/Week?
    •He would like to sell his Car after 3 years. Cars depreciate a lot in the initial Years. Assuming 45% Depreciation in 3 years. So affectively 5 lakh would be worth 2.75 lakh after 3 Years.
    • 150 KM per week, in 3 years would Clock 21600 (150*4*36). Let me round it to 22000
    •Money Spent on Insurance for 3 year : 25000
    •Money spent on Fuel in 3 years: 128333 ( 12 km per liter(city driving) you would need for 1833 Liter of petrol for 22000 km travel. So 1833 * 70 (price of 1 liter petrol) = 128333. )
    Let us round Money Spent on Fuel to : 128000
    •Interest Paid to Bank for 4 Lakh Loan @10.5% for 3 years tenure: 68000

    446000 is the total spending from Rajesh’s Pocket. This Outflow includes all the spending and the deprecation. The Car in all had clocked 22000 KM. So cost per KM = 446000/22000 = 20.27 Rs per KM. So let us Round off to 20 RS per Km is the actual Cost.

  2. @wealthucreate – and your point is???

  3. I guess he is saying that it is useless to buy a car only for weekend use, then he is better off paying Rs 15 for a Meru cab.

  4. i have not checked the calculation, but assuming that you pay for parking, toll, society charges for parking, cleaning the car, servicing, some kind of damage, etc. you will end up nearer Rs. 25, if not 30. Surely a bigger car will take it up north, but that we will ignore.

    if both H and W can drive and drive well, these assumptions are right. If only one of them can drive / will drive you will end up using a driver regularly. Also the resale price could be lower as new car prices come down. You have also not taken the OPPORTUNITY cost of the money, but we can live with that also.

    If you use a Meru cab you end up paying about Rs 16/km WITH no tension of driving, boot space, etc. – and that is HUGE. Also if you say stay in the far away suburb (and it costs say Rs. 600 from the airport) – you may decide to spend Rs. 70 on an a/c bus while going, but pick up your guests and come by your total cost is Rs. 670, and not 1200 – which is the theoretical cost of using the car. Airport parking charges are quite high, and have been ignored. Also ignored is the extra petrol you WILL burn in Mumbai airport because of the poor signage 🙂

  5. Nice calculation.I had done a similar calculation for my Swift Dzire and it came to Rs 25 per KM for 10KM average usage everyday.It will be more now with fuel hike.If I pay that kind of money for a taxi,I can probably rent a Toyota Altis.During college a friend had done a similar calculation for a 2-wheeler and had concluded that we can use an auto for all out transportation needs and still save a lot of money.
    But,the problem is that there will be no flexibility and taxis might not be available when required during festivals,new year etc.Therein lies the fallacy of the argument.Owning a car is all about convenience and flexibility.

  6. I do not know about new cars or otherwise. I have some data for myself as I make an account of all the expenses monthwise.
    I own a 2004 model Esteem (And it gives me a fantastic mileage of 17kmpl since the roads & traffic in Gr. Noida are excellent)

    Year 2010
    Insurance 4500
    Fuel 53750
    Maint 26320
    Toll & Parking 4000

    Year 2011
    Insurance 3800
    Fuel 60600
    Maint 25870
    Toll & Parking 5100

    All this on a running of approximately 26000km in each year on petrol. To put it in perspective we spend 8000 Rs a month on Grocery and Milk which is Rs. 96000 for two adults and two kids and one car eats away the same amount. Seriously thinking to tame down the beast …………..

  7. Hi Subra,

    Think this link might be of interest to you. It is quite basic, but still.

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