Buying a car becomes necessary in the young generation of India. In the last decade, car means the symbol of luxury and extra expenses for a family. The more preference given to buying a house as the necessary to run a life. The perception of people have changed over years, now most of them feel that owning a car is necessary for the life and it takes preference over buying a house. But, how they are financing the purchase of a car is not well prepared by them. However, car becomes necessary, it is not an assets for you in the future. It is depreciable asset and can not consider under the investment category. Lets discuss on what is the ideal financial plan to buy a car. If you like this article, please subscribe to our future articles here.
- What you should know about Car Insurance?
- Mystery of Petrol Price Hike
- Why the Oil price crisis in India?
- Books : Tax Planning
Cost of Car
Once you have decided to buy a new car, lets finalize the budget for buying a car. The idea for the budget is depends on the financial status of the buyer. Then start identifying the make and model of the car in the show rooms. Note that the budget and actual cost of the car may differ because it is difficult to estimate the exact price of the car without talking to the car dealers. So, prepared for the minor difference in the budget. Another important point is that, if you are buying the car in loan, don’t go for the higher end models with higher budget, you will have to pay the higher EMI in the future.
Cash or Loan
If you have decided the budget for the car, next plan should be how to finance your car?. It is always recommended to buy the car using the cash if you have it in the savings. Don’t have it in mind that car should be bought in loan. You go for loan only when you don’t have the cash in hand. As I have already pointed out, car is depreciable asset.
Prepare for the downpayment
If you don’t have the cash, then only option to buy the car is through car loans. Most of the banks offer car loans up to the 85% value of the car. The remaining amount has to be put as the down payment by the buyer. You have to plan for saving the money for down payment. If you have the surplus cash, put all the money in the down payment and reduce the loan amount. It will significantly reduce the loan duration. If you are paying for the long duration, the outgo of the interest payment would be very high. In the normal scenario, banks would offer the car loan in the period ranging from 4 years to 7 years. Not more than that.
Don’t take the personal loans
It is the biggest mistake done by many of us, taking the personal loans or using the credit card for financing the car. If you have it in your mind, don’t buy a car now. The interest rates for personal loans and credit cards are very high.
Plan for other expenses
I have noted that, many of us while buying a car, they are not keeping in mind that there are lot of expenses associated with maintaining a car. One of the recurring expenses is buying an insurance. If you buy a car worth Rs. 10 lacs, the first year insurance premium would be approx. Rs. 30000. It is not a small amount to ignore. Apart from the insurance, there are lot of expenses for servicing the car. think about all the expenses before buying a car.
I hope this article would have provided some basic idea about planning to buy a car. If you have interesting experience with you care loans or anything, please post it in the comments section. If you like the article, subscribe to our future articles here.
August 15, 2012 at 7:26 pm
I think if we pay full cash from hand for buying an car whatever the amount may be is there any IT or Central Excise problem will occur, even though we file every year ..
August 16, 2012 at 9:17 pm
Hello,
There is nothing like that.
if you are paying the proper income tax, how come you will be in trouble?. It won’t be any problem.
Thanks,
Krishna
August 17, 2012 at 11:42 pm
I heard the same from many people so I share the same..But if you see 90% are corrupted and doing tax evation..
August 19, 2012 at 6:02 am
Spending for Car is not a huge amount.
Thanks,
Krishna
August 19, 2012 at 9:07 am
Krishnas,
You could also include some analysis about buying a diesel or petrol fueled cars. I feel those who are going to drive less kms in a year should go for petrol car only even the petrol price is high.
August 25, 2012 at 6:29 am
Hi Suresh,
It is always good idea to buy diesel or auto gas car. If you buy a car, you will have it for the long time. So, you can not predict whether you will drive less or not.
Thanks,
Krishna
August 31, 2012 at 5:12 pm
Sir, I read your article ‘how to finance buying a new car’. It gives useful information in buying a car. Another important point before buying a car is whether they have enough space to stop it so that it can be protected from rain and sun. Most of the cars in metro cities are stopped in streets. This can also be considered before buying a car.
September 2, 2012 at 12:20 pm
Really your comment is true and many of the car owners are halting their cars in outside their home,roads, or rented car parking place its not only in metros but in two tier cities also the situation is same.Car space occupies minimum of 150-250sq ft depending on size.Averagely sqft in main area in cities and towns are nearly more than Rs.1500 its very low for example..Calculate it..In future we need to place car in our open upstairs terrace …
September 23, 2012 at 6:57 pm
Hello sankarasubramanian,
You are 100% correct. When they buy the car, have to check the parking space and buy the accordingly correct size cars.
Thanks,
Krishna
September 13, 2012 at 3:06 pm
HI Krishna. You stressed upon not buying a car by taking personal loan. It would be helpful if u please put some light on it.
Thanks.
September 23, 2012 at 6:56 pm
Hello Garima,
Buying a car is depreciate assets. Blocking lot of money on this is not good planning of managing your finance. You have to go with less interest rates and short term repayment of the loans.
Thanks,
Krishna
September 14, 2012 at 11:20 am
Mr. KRishna, thanks for your analysis for the car purchase. I am planning to buy a small car. i was soo much confused about interest payment.
Even i felt for depriciated asset, we should not invest by loan
September 23, 2012 at 6:54 pm
Hello Lakshmi,
You are correct.
You have to try financing from the own money. Otherwise you have to plan for the very short term repayment so that interest will be less.
Thank you for reading my blog.
Regards,
Krishna
September 16, 2012 at 11:39 pm
Great goods from you, man. I have understand your stuff previous to and you are just too magnificent. I really like what you’ve acquired here, certainly like what you’re saying and the way in which you say it. You make it entertaining and you still care for to keep it wise. I can not wait to read much more from you. This is actually a terrific site.