Wednesday, November 06, 2019

Should I take a car loan ?

l got my first car at the age of 27. I "had" money. I got a car worth 7 lakh INR in 2007. I took a huge loan of 5 lakh INR (1 Lakh = 100,000). And paid an emi of around 10,800/- for the next 5 years. The interest itself costed me 150,000/- extra. Which means for the car which I got for 700,000, I paid 850,000. 

And a car is a depreciating asset. Which means, as the car grows old, its value decreases. And 7 years later, when I sold my car, I got mere 150,000 INR for the car. Which means I lost more than 700,000 INR in owning & maintaining the car.

Instead if I had invested those 200,000 that I paid as down payment in large cap mutual funds, I would have received at least 400,000 after 7 years. However, I do not feel sorry about the fact that I blew 700,000 INR on the car, instead I repent the fact that I paid 150,000 in interest for a depreciating asset.

The question is - do you want to spend that much on the car you love? Keeping in mind that the life of a car is around 3 years max. After which its maintenance & old age becomes visible. And no matter how expensive the car is, you cannot run if for more than 10 years. 

The answer is for you to decide. If I ask myself the same question, in hindsight, I may reply that instead of spending lavishly and getting an expensive car on EMI, I should have got a smaller car on downpayment. And created a SIP of the EMI fund which will help me getting an expensive car in future.

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