Buying a car is a special and exciting goal for many. It is the most wanted material possession. When you start earning and saving, this becomes a dream for many.
“A dream without ambition is like a car without gas… you’re not going anywhere.” Sean Hampton
Table of Contents
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Step 1: Decide your car’s budget
Step 2: Decide if you want to buy a new or a second-hand car
Step 3: Check the resale value
Step 4: Research thoroughly
Step 5: Find the additional costs attached
Step 6: Negotiate
Step 7: Decide if you should go for a car loan
Step 8: Get an idea of how much to save
Step 9: Calculate the amount required for your dream car
Conclusion
Some questions in your mind could be:
- How much should be the budget of the car?
- Should you buy a new car or a second-hand car?
- Should you go for a car loan?
- How much should you be saving to buy a car?
These questions will be addressed here in this blog. It will guide you to buy your dream car.
How does it feel when you hear the word “car”?
There are two types of people. Check what category you fall into:
The first category: They feel it is as a vehicle which helps them move from one place to another.
The second category: These people have an emotional connection to the car. They have strong feelings and emotions attached. They name their cars and feel it more than just a car. They feel it’s a part of their family, which brings back a lot of memories like long drives, vacations, and other such memories. So this is the second category of people. Many fall into this category.
“The way I drive, the way I handle a car, is an expression of my inner feelings.” Lewis Hamilton
Which category do you fall into?
Now let’s see the simple steps involved in buying a car.
Step 1: Decide your car’s budget
“Budgeting has only one rule: Do not go over budget.” ― Leslie Tayne
The budget depends totally on your requirement. Requirement includes:
- The number of members in your family
- Resale value
- Safety features
- Fuel economy
You can decide how much you would like to spend on your dream car depending on your requirements.
Step 2: Decide if you want to buy a new or a second-hand car
Some think the car is an asset or an investment, but it is not so, its value depreciates quickly. Hence becoming a depreciating asset. If you were to buy a new car, it depreciates as soon as you drive it out of the showroom. A new car decreases in value in the first two to three years, especially in the first year.
Before you decide whether to buy a new or second-hand car, let’s see the advantages and disadvantages of both.
Advantages of a New Car
- Latest technology
- Latest features
- No issues, as its brand new
Disadvantages of a New Car
- Costlier compared to a second-hand car
- High depreciation
- Loan burden (if you avail the loan facility)
Advantages of a second-hand Car
- Cheaper and easily affordable
- Avoid registration fees and other charges (road tax and other RTO charges)
- Can be bought without a loan
- Low insurance premium
- Low depreciation
- Better resale value
- Leads to more savings
Disadvantages of a second-hand Car
- Old technology
- May require repairs
- High maintenance
- Legality issues (to know the old owner/were there any accidents before)
You have seen both the advantages and disadvantages of a new car and a second-hand car.
There are a few more ways to choose between a new and a second-hand car
A. If you plan to own a car for just a few years, say 1 to 3 years, you could go for a second-hand car, if its 4 or more years you can plan for a new car.
B. If your budget is low, you can go for a second-hand car, once your budget increases you can go for a new one.
C. If you’re just learning to drive you can go for a second-hand car, once you are confident you can go for a new one.
These are ways to prioritize according to your needs, choice, circumstance, and lifestyle.
Step 3: Check the resale value
It’s better to know the resale value of the car, just in case you want to sell it due to a financial crisis or want to buy a new car.
Step 4: Research thoroughly
This will let you know about the different prices at which the car is available, what are the additional costs attached to it, what is the price you can reach after negotiating.
Step 5: Find the additional costs attached
it’s always helpful to calculate the other costs of owning a car. They include car cost, cost of registering a car, fuel cost, tolls, parking, PUC, puncture, car servicing, car insurance, maintenance costs which include oil changes, new brakes, air filters, tire change, and other miscellaneous costs.
Here is a rough estimate of the additional costs attached to buying a car. The average holding period of a car is 6 years. For eg: You buy a car worth Rs.10 lacs. Let’s see how much you will be spending on it for this 6 years period.
The car cost Rs.10 lakhs
Petrol/Diesel Rs. 7 lakhs
Car insurance Rs. 1,00,000
Car servicing Rs. 80,000
Tire change Rs.20,000
Miscellaneous Rs. 10,000
Car loan interest Rs. 4 lakhsTotal amount spent Rs. 23,10,000
The amount you would have totally spent (on a 10 lakhs worth car) for an average period of 6 years is Rs.23,10,000.
What if you sell it at second hand. You may get approximately around Rs.4,00,000.
And the actual amount spent would be Rs.19,10,000.
What if you haven’t taken a loan, then it would be Rs.15,10,000. So, this is the total amount you would be spending approximately.
Most of them don’t think of the other costs involved when buying a car. But it is important to calculate them, so you would get an idea of how much you will be spending in total. (Not just the cost of the car).
Step 6: Negotiate
“Negotiation means getting the best of your opponent.“ Marvin Gaye
Negotiate and don’t hesitate. Also, find what are the rates at which the car is available with the other dealers.
Step 7: Decide if you should go for a car loan
Should you take a car loan?
Many doubt if they should take a car loan and many also go for it. But there is actually no need to take a car loan because it isn’t as costly as a house, where you have to spend a lot.
A car loan tempts you to increase your budget.
Many just look to the amount to be paid monthly, that is the EMI. Hence many are tempted to go for a loan of a longer period and end up buying a car that is beyond their budget.
For example, You want to buy a car with a loan. Say for eg: a car worth ₹ 10 lakhs. You have ₹2 lakhs and need a loan of ₹8 lakhs to pay for it.
Total Loan Amount = ₹ 8,00,000
Interest Rate = 8%
Loan Tenure = 60 months (or) 5 years.
EMI = ₹16,221
But it doesn’t stop here. In the end, the total amount you paid will be,
Total amount = ₹2 lakhs + ₹8 lakhs (loan) + ₹1.73 lakhs (Interest) + Repairs + Maintenance + Insurance.
It would’ve reached around ₹12 lakhs or even more. Insurance companies say that in 5 years, 50% of the value will be depreciated.
Outcome = ₹12 lakhs (money spent) – ₹5 lakhs (current value of car)
You have successfully lost ₹7 lakhs over a depreciating asset that will be nothing in few more years.
So think before you buy a car, and when buying try to get one within your budget, and if possible avoid loans.
Now here are some questions for you:
- Haven’t you saved enough to buy a car?
- Can you pay for the additional EMI?
- Is your interest rate higher than your returns on investment?
- Don’t you want to use money from your investments?
Some people have worked for 8 years or more and still haven’t saved enough for a car. If this is your case, then it’s not how it should be. If you have been working for a few years, and if you haven’t saved enough for a car, then it’s probably because you haven’t managed your savings and you are not on the right financial track. It’s not a good sign.
If you already have a home loan or any other loan and now a car loan, can you afford the additional EMI or not?
For eg: You may have a fixed deposit at 7%, and would want to buy a car with a car loan of 13%,
Does it make sense?
It is suggested to redeem your investments and buy the car with this amount and the EMI that you would be spending on the loan can be saved for the next few years to build a corpus.
If you have made investments worth Rs. 15 lakhs or so, you may feel that taking this money to buy a car can reduce your net worth to 0, and hence you have to start from scratch. So you may want a car loan, if this is your case, then it is reasonable.
Now discuss with your family whether you should go for a car loan or not. Mostly advised is to avoid loans at all costs.
Step 8: Get an idea of how much to save
How much should you save per month?
For eg: If you can save Rs. 60,000 per month, then Rs.3 lacs worth car is 5 months saving. If you can save Rs. 50,000 per month, then Rs. 30 lacs worth of the car is 5 years worth saving.
So, it all depends on
- the cost of the car,
- the amount you will be willing to save for it and
- the number of months/years you will be willing to save for it.
You can decide depending on these factors, to reach the goal of your dream car.
Step 9: Calculate the amount required for your dream car
This is the final step and here is a link to an easy to use dream car calculator. It’s a very simple calculator. This helps you find how much to save monthly, to reach the dream goal of your car.
Here is a simple example of how the dream car calculator is used.
Mr. X enters the cost of his dream car. Likewise, you can enter the details in the calculator and find the amount you need to save.
First, enter the cost of your dream car. Here he enters Rs. 10 lacs.
Here he has to save Rs.33,333 per month (for 12 months) to arrange for the downpayment. This is how you will find how much to save monthly, just enter these details in the dream car calculator and find how much you need to save monthly.
Points to note:
- It is good to check a second-hand car with the help of a mechanic, so you get to know the condition of the car. You can also decide whether to buy it or not and if you plan to purchase it, you can negotiate the price according to the condition of the car.
- Insurance premiums increase with the value of the car. Hence buying an expensive car can increase your annual insurance premiums.
Conclusion
Now you would have known the simple ways in which you can purchase your dream car. You can follow these simple steps and you will reach your car goal in no time. Do thorough research and don’t forget about the additional costs when you buy a car. Avoid taking loans and try to get a car within your budget and also the car of your dreams.
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Very nice
Thank you