The normal question you expect to find in a personal finance website is ‘Decide on how to fund your car’..but let us go one step behind!

In the last 6 months I have seen 3 kids getting a Nano to go to college. Luxury or Necessity? No comments. Reality.

I have seen a person earning Rs. 400,000 gross buying a car. Father is a retired banker living on a pension and is the owner of the house. Son does not pay for food or board, but parents are THRILLED that their son has a vehicle 🙂

Before passing a value judgement, just think…DO YOU NEED A CAR?

How easy is it to get by using the public transport – at least in Indian cities it is NOT IMPOSSIBLE, but yes not easy either. In many Indian cities like Mumbai, Delhi, Chennai and Kolkatta public transport is subsidized. This means the cost comparison between a private transport and public transport is a completely unnecessary exercise to know which is cheaper. For example a railway pass (first class) costs less than the PARKING charges …especially taken on a monthly basis.

Also buying a car may not cut down your other expenses on auto, bus, etc. because your spouse, children, parents may still be travelling independent of your travel. Similarly you may take the car to office, and during that period the car is not really available to your family. Understand and appreciate all this before you take the plunge.

What are the factors that you SHOULD consider BEFORE you buy a car:

a) is there a public transport available without much inconvenience? In bigger cities you are likely to have a bus/train service which can be used for reaching your office. Or you can use the public transport from your home to a station near the office and then take an auto/taxi to your office.

b) how much is the distance: if your office is 8-10 km away and the road is easy to drive, it may make sense to drive down. However if it is 39km one way..driving in city traffic is not going to be easy.

c) remember fuel prices in India is determined by the government – so the taxes, $ rate, international prices, inefficiencies of the public sector distributors,…all get built into the price, so be careful. If a 10% increase in fuel costs will hit you, do not buy a car.

d) seriously consider a 2 wheeler before you buy a car…

e) will your spouse drive/ does she work in the same vicinity

The sad part is our public transport is so subsidized that there is NO WAY how a car can be more economical. Hence not including some such calculator, but hey Google has them, check it out!

Also when you see the price of a car and do consider the EMI please consider insurance, fuel, fines(!), cleaning, maintenance, parking charges when you go out, parking space cost in the residence, at the office,etc….

And hey consider the second hand option too 🙂

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  1. Hi Subra Sir, the Google ads shown on the side of your article shows the ad for buying a Car 🙂 (Google knows that the article is about the Car but does know that it is not encouraging the reader to buy)

  2. I think you should also write about whether one needs iPhone. All the principles of car buying can be applied to phone buying.

    I am amazed to see the number of people buying iPhones. Some families have more than 2-3 iPhones. I wonder if some folks are spending more than their monthly salary on a phone.

  3. i-phone does not incur as much of running expenses. Car, airconditioner, etc. are killers in terms of running expenses. People do not realise that. Parking charges in a half decent city is about Rs. 250 a day. Then there are bribes, car insurance, puc, in a country where the public transport is dramatically subsidized.

  4. I disagree about costs of iPhone. If you have an iPhone, then you will need 3g connection to fully utilise it which costs ~400-500 pm. Also after 2-3 years, when its battery starts misbehaving, your 45k iphone will be worth exactly 0 because you cant replace the battery!

  5. Besides Not having a car also helps to

    1.Reduce already poluted cities .More Carbon points than CO2,Lead,Carbon Monoxide and other harful emissions

    2.Help couch potatoes and all family members as walking gets encouragement at least till bus stop ,Railway stations,Auto stands and these small Bits have good cummulative Mileage

    3.For a family outing and on need basis…we can always hire . Any subramoney reader knows ,Renting is better than owning( – If we are using a car or taxi for 2 hr per day for to and fro ,we pay for 60 hrs per month.On other hand ,if we own car ,we pay for 720 hrs which includes besides costly fuel,Parking,Maintainace ,Insurance and stress of driving in already stress ful life )

    4.As subra rightly said to drive 2 way from Nariman point to Malad/Borivali /Thane or from Andheri to Malad/Borivali/Thane in traffic hrs is a nightmare .Solution ? Most people driver chauffer driven own car ,which increases fix cost of Rs 10000 pm currently .

  6. Subra sir… i did come up with such a comparision. For some reason i am not able to put the table.. But this details should help convey what i want to.

    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: 68000So this gets the below data in general:

    Interest Paid to Bank(4 lakh loan for 3 years Tenure) 68000
    Money Spent for insurance (3 years) 25000
    Loss due to sale of Car after 3 years(5lakh -2.75lakh) 225000
    Money Spent on Petrol(22 KM City Drive) 128000

    Total Money Spent by Rajesh 446000

    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.

  7. Timely post Subra……

    I’m happy to travel by BEST bus to my office which comes to exact 32 Kms from my home 🙂

  8. Transport is a NEED, Car is always a WANT.
    One positive step could be to eliminate financing for private vehicles – one should be allowed to buy a 2-4 wheeler only by CASH – not on EMI basis. This would at least reduce the impact of this financial stupidity.
    Also, while public transport might be a decent option in big metros, there is no focus of govt across the board to focus on comfortable/convenient public transport. If all major towns had a basic call-taxi service (even at a premium) & buses covering major routes at 5-10 min frequency during most of the day, a major need for private vehicles would go away.
    Finally, the last mile (or meters) should at least be ‘walkable’ – this is the area most ignored/neglected, which leads to people moving from bus to auto & auto to private car as soon as they can afford it…

  9. ha! public transport!
    What public transport?
    I re-learned to drive at my advanced age cause those &^%%# autowallas look right through you, forget abt asking destination.

  10. Recently I recievd a snail mail from ICICI bank for non payment of Car loan amount.

    The mail was addressed to previous tenants that were living prior to us. Seems some chap had taken a car loan to the tune of 10 Lakhs and was in no mood to pay.

    For reasons of owning car were based on needs rather than want.
    But I did make sure that I paid full amount upfront and sticking to tight budget.

    Also one more thing, buying car on company lease proves to be beneficial in following ways.

    (1) You only pay ex-showroom price
    (2) You get fuel expenses (6k In my company)
    (3) Your EMI is tax free.
    (4) You car maintenance is free as it is taken care by lease provider.

  11. Around Rs. 23 is the cost that I had arrived at – again a rudimentary, crude kinda calculation…In the ex u have given the resale price could be much lesser – esp with so many new cars coming at the bottom of the table.

  12. But for Businessmen,interest paid,Insurance and Depreciation can b claimed as expense.Then effective Cost per Km will be onlye fuel charges.

  13. What you say about public transport is true for Mumbai. Unfortunately, Not all cities have public transport cheap or subsidized or as regular as Mumbai. In Bangalore – for example, people pay Rs. 200/- for reaching airport (30 Km away) – its AC bus and normal buses don’t ply on that route.
    Even in normal bus where they do ply, fare is approx Rs. 2/km.
    Add to this the fact that the buses are always crowded, most bus stops are far from housing localities, abusive conductors and language problems – no wonder that people want to buy cars as soon as they can afford it. Another aspect is time, when you work on an average 10 hrs in office, you want to cut down commuting time as much as possible to enjoy family/bachelor life.
    Official Auto rate is Rs. 9/km, but no one will go by that rate even at day time, forget evening/night/early morning. Taxis charge Rs. 17.5/km.
    When I take a two wheeler along with someone, it is CHEAPER than bus fare – even though we pay almost Rs. 80/- a litre for petrol. 🙂
    Not complaining, just telling the other side of story.

  14. You Guys are still lucky ti have public transport even at high price.
    Come Gurgaon and you will wonder if authorities planned this city thinking that everyone will use his own transport.

    1 year ago there were not even private to hire. The only public transport was Shared Auto the image of which is in link below.

    After bearing for 5 years without any own transport finally bought car this year and happy with decision.

  15. a.If it only for me, i would neveer think of buying a car. but what about elders/kids.
    Our public transports are not very convenient.(we are not in singapore)
    Government should have a policy to have more tax on cars and use that to improve our public transport.
    till then….

    b.I second that..

    c.Yes,fuel prices would kill the life.
    I know many people bought fancy cars but rarely use them because of high running costs..
    Sheer waste of money..

    d. Really? When was the last time you drove two wheelers?
    When you are on a two wheeler, there are lot of risks.With the cabbies, trucks,buses trying to
    out manouever, you are at greater risk..
    And if you have kids, i dont even want to imagine..

    e.Not everyone is lucky like that..

    Speaking of renting autos/taxis,not always convenient..
    Some auto drivers charge 20/km and and you should really feel lucky if they agree to come.

    In many cities, car has become necessity…buy a safer car but withing your purchasing power…
    life is not always about numbers… 🙂

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