Should I buy a car ?

Should I buy a car ? This is a million dollar question every professional has, particularly software engineers in Chennai. There are quiet a number of questions to be asked and number of aspects to be considered to answer this question. Some simple questions are if you are single or married, how long do you commute to work daily etc. In this blog, let me try to analyse this question in a financial perspective.

For this, let us consider a hypothetical situation. There are 3 guys in the similar financial status. Let us assume that each of them commute a distance of 20 Km daily. Let us assume approximately that they commute 600 Kms per month.

At start of year 1, each decide to take 3 different modes of commute for the next 5 years. Guy 1 commutes using public transport, guy 2 in call taxi daily and guy 3 goes for a car. Let us calculate what is the total expense spent by each guy for commute.

Let us assume guy 1 spends Rs. 30 every day on commute. Considering 30 days, the total spend approximately would be Rs. 900 per month and 54,000.00 for 5 years.

At the same time, guy 2 using call taxi spends Rs. 4,200 per month at Rs. 7.00 per Km. The total comes to Rs. 252,000.00.

Let us say that guys 3 buys a car taking a loan of Rs. 4,50,000/-. At 9 per cent diminishing rate for 5 years, the EMI comes to Rs. 9341.26 per month. The total loss on interest on this loan after 5 years is Rs. 110475.59. If he drives 600 Kms every month as assumed, with a mileage of 13 Kms, he spends Rs. 2215.38 on petrol @ Rs. 48 per liter. Additionally , let us assume that he spends Re.0.5 on maintenance. It comes to Rs. 300 per month. And there is insurance to pay. Calculating insurance at 2.5% of the value of the car, for 5 years, his outgo will be Rs. 50212.12. So, his total expense for 5 years comes to Rs. 610,687.71. Looking at the expenses, he decides to sell his car. With a lot of new models available at much lower rates, second hand card don't sell for much. Considering a depreciation of 12%, his car will sell for Rs. 237,479.36 after 5 years. So, his total ex pence for the commute for 5 years is 610,687.71 - 237,479.36 = Rs. 373,208.35.

From these arithmetic, it is obvious that using public transportation is the best option in financial perspective. But there are other intangible things to consider. Some are positive and others negative.

With our own vehicle, we can do better time management and can travel faster. Also in a society like ours, there is a pride associated with owning a car. It feels good to go in a car for a family function or official occassion.

There are some flip sides too. Firstly, it is not an easy task to drive a car in a city like Chennai. It is a tense affair particularly if you are retruning back after a busy day. There is always risk of liabilities arising out of any accident. When we hire a car, this risk is transferred to the owner of the car. And for folks working in software service industry, it is possible that they travel long or short term and the car may be idel for months if there is no body to care. During this time too, the car is going to depreciate in value.

But again, there is a please in driving a car. Particularly with your loved ones, in a winter evening through a highway with not much traffic is an experience worth it.

Finally, your decision to buy a car should be based on the above intangibles. Be aware that our priorities and weightage do change over time. Weigh all the options and how they are likely to change over time and take a informed decision.