Personal Car: Is It Good To Buy A Car on Credit or Loan

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Personal Car: Is It Good To Buy A Car on Credit or Loan
Personal Car: Is It Good To Buy A Car on Credit or Loan
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Kumar Sunil

Kumar Sunil

Dreamer & Enthusiast

Creative. One word says it all for Sunil. A engineer, an enthusiastic and conscientious Information Technology consultant by profession, Sunil shares a special interest with entrepreneurship and lifestyle.

Buying a car on loan is a trend these. Moreover, what is the harm in buying a car for the family, when banking institutions are offering them facilities like easy month installments? Do you think the same way?

Buying goods on loan is an easy way of accumulating materialistic things. Most of us name it as ‘dreams.’ Be it a vacation, house, personal expenses, or car; banking institutions are always there with innumerable options. But, the question remains the same – is it good to buy a car on credit or loan?

Last month a friend of my bought a car. I was horrified when I heard that he bought a car because he is not doing so well with his finances. But, what shocked me the most was when I heard that he bought the same on credit and now he will paying a good amount to the banks and that too for 60 months i.e., 5 years.

Personally, I wanted to give him a slap in the neck and tell him that he has already in trouble; a pill that keeps you awake at nights. Life on debt seems colorful, but in real, it is painful, especially, when you don’t have any sort of fix income.

I know many people will say that no one buys a car on the cash. I agree to that. But, is it so important to bond yourself for a thing that is not necessary at all or you have other cheaper options available like used cars?

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Do you know, when you buy a car for personal use and with no intention of making it a commercial vehicle through which you can make money, you are actually buying a loss. Hope you have heard about the accounting terms known as depreciation, and other yearly expenses except for monthly installment.

If you do a simple mathematics, you will know why I am saying this. When you buy a car on loan – you are investing in an asset that is not going to give you a healthy return. Let me explain this to you.

For this, I am talking two examples. One is for seven years’ lease period and another is for five years lease period.

1Example 1 – Lease Period 7 Years 

Is It Good To Buy A Car On Credit/Loan – Car Loan 7 Years
  • Bank loan – INR 4,00,000
  • Lease/Payback period – 7 Years (84 Months)
  • Interest rate – 10% (interest rate may vary up to 15%. Depends upon the loan institution you choose)

You will be paying

  • Monthly EMI – 6,641
  • Total Interest Payable – 1,57,800
  • Total cost of vehicle – 4,00,000 + 1,57,800 = 5,57,800

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2Example 2 – Lease Period 5 Years

Is It Good To Buy A Car On Credit/Loan – Car Loan 5 Years
  • Bank loan of INR 4,00,000
  • Lease/Payback period – 7 Years (84 Months)
  • Interest rate – 10% (interest rate may vary up to 15%. Depends upon the loan institution you choose)

You will be paying

  • Monthly EMI – 8,849
  • Total Interest Payable – 1,09,930
  • Total cost of vehicle – 4,00,000 + 1,09,930 = 5,09,930

I am not adding other expenses like registration, taxes, insurance, bank charges, depreciation, car servicing and etc. undoubtedly car value is going to decrease by 20-25% immediately after you take it. And, after five or seven years, you can imagine the amount you are going to left with.

If you are not using it commercially, I strong believe, you won’t be able to recover any good amount out of this car after the lease period, be it for seven years or five years. The decision of buying a car on loan is no way right. Try to explore your gain with your loss. Just sit and put on paper all the details

So, would you still buy a machine on loan, when you know it is going to bring you financial instabilities?