Buying a car can be a major financial decision. The choice of models and attractive financing options make the purchase seem easy and enticing. But are you making a financially smart decision?
Here are 6 questions you should answer to make sure your car purchase is a smart one.
- Am I prepared for the financial burden of servicing a car loan?
Most of you will probably go for a car loan to fund your vehicle purchase. It’s important that you understand the financial pressure an EMI might put you under. This is all the more important if this is your first time taking a significant loan burden.
If you are paying other EMIs, then make sure that you are not paying more than 40% of your take home income towards all EMIs combined.
- Am I prepared for the financial burden of maintaining my car?
Cars are nothing like a bike when it comes to servicing costs. The average cost of maintaining a car can be upwards of three times that of maintaining a bike, in terms of servicing costs. If you add fuel costs, then you are moving into a whole new territory.
Make sure you are ready for these costs which can increase your monthly expenses for travel by a factor of two, at least.
- Would a second hand car make more sense?
Another key consideration for you would be used or new. In India, we tend to think of a car as an asset. A car is actually a liability, and you must try to make sure that it is not an expensive liability.
A second hand car can cost less when buying it, but more in terms of lifetime costs due to greater servicing requirements. Make sure you have done a thorough check when buying a second hand car. If you are going to use the car infrequently, a second hand car makes more sense.
- Do I intend to sell my car some day?
If you are buying a new car, you must ask yourself if you intend to replace it at some point of time. Certain cars and brands have better resale value which comes in handy later.
This also implies that the more care you take of your car, the better value you will end up realizing from it when selling. Take care of your car documents as well, because lost documents can make selling a big hassle.
- Will I get good service?
It makes a great deal of sense to buy from a brand that has a big service network and is known for providing honest and effective service for your car. The better the quality and availability of the service, better the value you will derive from your car.
A big service network takes care of scenarios where you might shift cities or when finding a service station for your car.
- Am I considering every cost, including insurance?
The insurance and additional costs such as that for the music system you want to install or the parking aids, all need to be factored in. While insurance premium per year for a motorcycle would be less than Rs 1,500- Rs 2,000, insurance premium for a car can easily be Rs 7,000- Rs 10,000.
The car company might be selling the car with an installed music system but if you want something fancier, be prepared for those costs which can again reach into the 5 figure range. You can spruce up your car all you like, but be prepared for fixed or recurring costs as a result.
A couple of smart hacks :
- In case you find it tough to save for your car, you can invest small amounts in SIPs of mutual funds, to save up for your future car. Scripbox can help you automate this.
- Till you have your own car, you can use car rental services or app based cab services for important days when you need a car.