Is getting a car loan a good idea?

You might be looking to fulfill your parent's wish by getting your family a new car and thus enhancing your father's pride and mother's happiness. But buying a car is not just an emotional decision. It is a financial decision, and an important one. Especially if you are funding it via a car loan. But is it financially feasible?

Well, getting a loan always seems simple until you get it. You might get a call every few days from unknown bank sales employees about how easily you can get a car loan. But since you will be buying a car and keeping it for a few years, have you ever calculated the cost of one in the long term? 

1. Well, say you want to get a Maruti Swift LXI model that costs Rs 5.92 lakh (ex-showroom price), and the final purchase price after paying taxes and registration ends up being about Rs 8 lakh.
2. Since you have to pay a down payment of 20% (ie say about 2 lakh), say your loan is for Rs 5.92 lakh. 
3. A normal car loan costs about 8-10% and is usually taken for about 5 years. In this case, your EMI will look like this: If your repayment period is say 5 years, your EMI will come down to about Rs 10,000 to Rs 12,000. Else for a loan period of 3.5 years, your EMI will be around Rs 16,000. 

   

    

4. Add to this your annual maintenance cost which involves oiling, servicing, and repair, and say it costs about Rs 2,500 per month.  
5. Say your car gives a mileage of 20 km/litre and your car goes for about 1,000 km per month. You will need about 50 litres of petrol per month (1000/20). Since petrol costs about Rs 110 these days, petrol cost per month will be about Rs 5,500 (110*50)
6. If your car parking charges cost about Rs 500 per month and say your car cleaner also charges Rs 500 per car per month. So let's add Rs 1,000 for this.   

   

7. This means your total cost per month for your car amounts to about Rs 25,000 (Rs 16,000 (EMI)+ 2.500 (maintenance)+5500 (petrol)+1,000(others)
8. Your cost per km amounts to be Rs 25/km if your car runs 1,000 km per month (25000/1000)

If you invest the same amount every month in some good stocks or even in a FD, you might make more money for your future goals, which is more important than having a social symbol.

So, what to do? 

Have you thought of paying for the car in cash? How about using Ola or Uber? 

If you hire a car, car rental platforms usually have a flat fee of Rs 70-100 for the first 7-10 km and from there on, every kilometer costs you Rs 12 to15/ km. So on average, the cost per kilometer comes up to Rs 10 -12. 

Isn't this a much better option than buying a car on loan where your per kilometer cost is Rs 25/ km. 

Buying a car makes sense if: You have to travel for long distances extensively every day for long periods of time, or you have a big family because of which you have to book two cabs at a time. Or even in times when it is not safe to drive in cabs if you are traveling late in the night.

Though some debts are good, car loans are usually considered bad debts since cars depreciate in value every year. So, unless getting a car by hook or crook is your only priority in life, it is better to stay away from this car loan business.