To understand whether you should buy a car or take it on rent
Let us discuss about how to take decision regarding buying a car with the help of above example:
For example:
Cost per km of self-drive car
- You are planning to buy a Honda City worth Rs. 12 lakh.
- You have to pay a monthly EMI of Rs. 24,000, if you take a loan of Rs.12 lakh for 5 years.
- Also, you have to bear Rs. 2,000 as monthly insurance (i.e. Rs. 24,000 annually) and Rs. 2,000 monthly as servicing expenses (i.e. Rs. 24,000 annually) for this car.
- So, you have to bear Rs. 28,000 as monthly expenses just for the car wherein we have not added any cost towards the money spent on repairs or petrol, etc.
- Now, if you start using this car, you can assume Rs. 1,000 monthly on wear and tear of the car.
- If you run 1000 km and your car gives mileage of 12 km/litre, the cost will come around Rs.7.50 per km of your car.
- Thus, the total monthly expense on a car will be Rs. 36,500, and cost per km would be Rs. 36.5. If you hire a driver on a salary of Rs.15, 000 per month, your cost per km will be around Rs. 52 per km, whereas OLA & UBER charge Rs. 7-12 per km.
- Thus, you can save Rs.40 per km, if you use OLA & UBER i.e. Rs.40,000 monthly, which you can invest in mutual funds and earn around 12% returns per year and a profit of around Rs.10 lakh.
- In other words, buying a car might be one of the wrong decisions of your life.
If you are young and switching jobs from one location to another, you should use OLA/UBER instead of buying a car.
For example:
- Entire Singapore runs on public transportation and you can find bus, train, and cab very easily there.
- A Swift Dzire cost in India is Rs.8-10 lakh while it costs between Rs.35-40 lakh in Singapore, This because the country promotes public transport and even the millionaires travel in public transport.
- So, we should also try to develop the same culture not just to save our money but the environment as well.
At the end of the day, you should focus on completing your work rather than keeping bondage in the form of a car. Car is a liability and not an asset.
Thus, you should think twice before buying a car.
Key Outcomes
- Consider cost per km while buying a car
- Use OLA/UBER if you are young and switch jobs in various locations