True cost of owning a car and how to lower it

Buying a car is a major milestone in one’s life and one that most people diligently plan and spend a lot of thought towards. However when buying a car the quoted price is just the start there are other costs that the buyer must be aware of before finalising the purchase.

This post outlines some of these factors and suggestions to reduce these costs.

1. Initial purchase price
Naturally the largest cost in owning a car is the purchase price of the vehicle; also be mindful that all other taxes and government fees are dependent on the price.

Pro tip:
Arm yourself with information available online and compare prices with multiple dealers and negotiate the best possible deal. In case you are trading in your previous car; compare prices at the various portals dedicated to preowned cars and understand the price you should receive for the trade-in.

2. Interest Rate
In all probability you would be seeking financing for your dream car; be aware that the interest costs on the repayments would be substantial and one to be considered while finalizing the budget for your vehicle. While budgeting a rule of thumb to consider is to limit the car loan EMI to lesser than 15% of your net take-home salary.

Note: Large liabilities are the primary reasons stated by people who don’t follow their dreams.

Pro tip:
Don’t rely on the financing options offered by the dealership; shop around and receive multiple quotes. Compare the terms carefully to ensure you are comparing apples to apples. It is also best to seek a pre-approval from the preferred financier before visiting the dealer. In addition to receiving favorable terms from the financer this would also help you negotiate a better price with your dealer.

3. Depreciation
Your new flashy car would lose as much as 20% of its value the moment the front wheel leaves the dealer’s premises. Be aware that your vehicle is not an asset! The car’s value would be depreciated each day and kilometer that you drive it; and this would be a substantial cost of owning a car.

Pro tip:
There isn’t really any way around this; you could limit the depreciation by taking good care of your car with regular maintenance and careful driving.
You could consider buying a pre-owned car; but since it’s a very personal choice I wouldn’t harp on this too much.

4. Maintenance
Don’t underestimate this cost; a car requires regular maintenance, needs part replacement, tyre changes etc. These are real costs and consider that if you were to assemble your car buy buying the parts from the dealer/manufacturer it would be 3 times costlier!

Pro tip:
Do a comprehensive research on the car (and model) you are planning to buy – both online as well as within your social circle.
Further, Dealer’s and manufacturer’s these days are offering comprehensive warranties and maintenance plans which could protect you somewhat (do however make sure you have read the terms carefully). This however would add to your initial purchase price; weigh the pros and cons based on feedback before you make your decision.

5. Insurance
By law you need to have your car insured to cover; insurance is thus an additional cost that needs to be considered.

Pro tip:
Research for quotes prior to finalising an insurance provider. Also be aware that quotes could be dependent on your claim history, driving record, distances and conditions you drive etc. So try and get the best deal possible.

6. Fuel
I know India is all about mileage; but for the sake of making this list comprehensive adding the point here to ensure that you don’t forget.

If you are planning to buy a car soon we would suggest saving the down payment with Finlok a unique way to digitise group savings. The platform would help you meet your saving objective, if you have a good payment history then possibly receive the pooled funds earlier thereby accessing nearly free credit. What’s better you would actually be returning the favour to the friends that participate on your saving circle as the circle progresses.

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