Buying a car/ Renting a car?
It’s important to wisely decide and understand whether buying a car is the correct financial decision
or not.
Buying a car is usually looked upon as a milestone in life. In Indian households buying a car,
especially the very first car, is considered as an auspicious event, we take the car in a temple or pray
around it at home. It’s a fact that buying a car may give emotional satisfaction to most of us, at the
same time, it’s important to be rational and practical belonging to the generation of financially wise
individuals.
Let’s first talk about owning a car, owning a car isn’t just the amount at which is listed as the ex-
showroom price, in fact much more than that. Some of these factors include the registration price,
(which varies from state to state), insurance (which is mandatory) and other taxes like road tax etc.
are added to it to make the on-road price.
Now, let’s consider, that being from a young and ambitious generation, the person takes a loan to
buy a car. Approximately 20% of the price of the car is to given as down payment, and the interest
rate may vary, ranging from 9–11 percent. If we assume the price of the car as Rs, 5,00,000 and
assuming the same figures, The EMI could amount to Rs. 8,500. If we see the monthly EMI, we’ll
realise that only some amount from it is the principal amount being repaid, and rest of the amount
goes to the bank, which could be considered as an amount paid for using the car.
Coming to another expense, which is Petrol. The petrol prices, currently are hiked to 85–90Rs. /Liter.
Assuming this amount of petrol, and the total kms per month as 2000, some amount around
Rs.12,000 will be spent just on Petrol. Another cost is the Maintenance cost which is completely
variable, but car being a machine will definitely amount to some or the other maintenance Cost.
Assuming the maintenance cost as Rs. 2500 (which is very minimal), and adding all other up written
cost, the total monthly expenditure will be around Rs.22–23,000.
to calculate the opportunity cost, we’ll calculate the interest on investment, which is, if we could
have invested the Rs.1,00,000 Lump sum instead of using it to buy a car. Taking the interest amount
to Rs. 10–12,000, the opportunity cost, every month will be Rs.23–24,000.
If we spend the same amount for Renting a car, we could probably rent a better and more expensive
one, without having to worry about the procedure of Buying, maintenance etc. in the presence of
Trustworthy brands which makes it Very easy to rent a car. Renting a car could also mean, flexibility
and up gradation according to requirements.
