Just the other day I read a piece of new that said that there are just a little over 24 lakh people in India with an income of over Rs. 10 lakhs yet 25 lakh cars are bought every year. Well this news article was focused on a different subject but yet it did give some other insight too; a lot of cars are bought in India each year. When buying a car the obvious considerations are the brand, model, capacity, technical details and of course the money matters. However it pays to remember that the cost one incurs is not only the upfront payment that one makes but also some additional costs. Again while some costs may be one, other may be recurring. So before buying a car, the first one or the additional one do make sure you are aware about the various costs.India has just 24.4 lakh tax payers who declared an annual income of over Rs 10 lakh yet 25 lakh new cars, including 35,000 luxury cars, are being bought every year for last five years, a top official said. India has just 24.4 lakh tax payers who declared an annual income of over Rs 10 lakh yet 25 lakh new cars, including 35,000 luxury cars, are being bought every year for last five years, a top official said.
- Interest Cost:
A large number of cars are bought with the help of a car loan. Obviously when one takes a loan they will have to bear the interest cost; those who choose to buy a car with their own source of funds they clearly do not have to incur this cost. Your monthly installment for repaying your loan will depend on the amount you borrow, the interest rate charged by the lender and the duration of the car loan. Thus the EMI whether big or small is a recurring expense that will last the loan duration. If one has low credit rating then getting a car loan could be tough. However there may be lenders who may offer a loan for low CIBIL score but these would be at higher interest rates so the interest cost for the loan would go up.
- Miscellaneous Cost Related to a Loan:
When you avail a loan for buying a car there is the obvious and recurring interest cost. Apart from that there are miscellaneous one time expenditures; though individually these costs may appear to be small but put together they can be of quite a sizeable amount. The costs involved in availing a car loan are; non refundable processing fee (it could be a fixed amount or a percentage of the loan amount), documentation charges, CIBIL report charges, stamp duty etc. Then there are incidental charges which may be charged in the event like a cheque bounce, non-payment of dues or pre-payment of a loan etc.
- Cost of Insurance:
Getting car insurance is a must in India so this cost is added to your recurring list of costs when buying a car. A car insurance generally covers damages that may occur to the car or loss due to accident, riots, natural calamities, theft etc; the liability of the policy holder in case of bodily injury or property damage due to the car to a third party and also medical cover for treating injuries and other costs like lost wages for the owner driver. The car owner has to pay premium for the insurance cover that he/she buys. The amount of premium depends on the value of the car, how old the car is, occupation of the car owner and the claim history. If no claim is made in a year then one can get a discount in the subsequent year/s.
- Registration fee:
This is another one time cost that is incurred at the time of buying the car. Registration charges are based on the ex-showroom cost of the car and the discounts received are not taken into account when calculating the registration charge. The registration fee includes a road tax, registration charges, and number plate charges. The charges vary State wise and each state has its own rate structure.
- Maintenance Cost:
Buying a car means incurring maintenance cost and not once but it is a cost that is recurring. This cost includes expenses like getting your card serviced and cleaned regularly, incidental costs that may occur due to minor damages which you might not like to claim through insurance. Apart from that there is the depreciation cost; the cost of wear and tear that occurs because of usage and passage of time. On an average the depreciation rate for a new car is considered to be 20% in the first year and from the following year it keeps going up. For a used car obviously the depreciation rates will be higher. Thus it may not seem like an obvious cost but depreciation is a hidden expense that you occur as the value of the car you bought reduces with time due to wear and tear
Though we love our fancy new wheels always remember they come with cost, some obvious and some not so obvious.