The question of whether you should purchase a car or obtain a car on lease is not as simple as it may seem. With the likes of OLA and UBER, and other forms of transportation, it becomes essential to understand what owning a vehicle truly costs. With this guide, I will help you arrive at an educated decision on whether renting or buying suits your needs best. We will look at the car purchase cost as well as leasing vs. driving costs.
1. Buying A Car- Cost Breakdown
One Time Payment And Additional Payments
Take, for example, the purchase of a Honda City that costs Rs 12 lakhs. Here is a breakdown of the financial commitment:
- Monthly EMI Payment (5 year loan): Rs. 24000
- Servicing Insurance: Rs. 2000 (Annual Rs. 24000)
- Servicing Charge Per Month: Rs. 2000 (Annual Rs. 24000)
- Monthly Expense Total For Car: Rs.28000
These calculations do not include fuel, repairs, or general maintenance. Additionally, an average wear and tear cost of Rs 1000 per month can be expected as well. Considering all the aspects highlighted, the total comes out to around 36500.
Cost Per Kilometer
Let’s say that you drive your car a thousand kilometers every month and your car has a mileage of about 12km per liters. This means that your cost per kilometer would be approximately Rs. 7.50. If you hired a driver, however, your cost per kilometer would go up to Rs. 52.
In comparison, ride-hailing services like OLA and UBER charge customers between Rs. 7 and Rs. 12 per kilometer. Hence, students with these services can save 40 expect owning cars, which are quite expensive, because they have the potential to save Rs 40 per kilometer and lose 40k per month.
Investment Opportunity
Instead of hoarding away that Rs. 40,000, one could spend it on investing into mutual funds. If it nets you a steady annual return of 12%, in a few years you could have around Rs.10 Lakh. This reinforces one of the positive aspects of renting over buying: saving your money for investment as opposed to wasting it on assets.
2. Benefits of Renting a Car
If you are young, on the go, job-hopping or relocating, renting may be your best option for a car because of the affordable price.
- No Long-Term Commitments: There is no need to spend too much money as renting can be done on a long or short-term basis. The fine print of your agreement with the company will determine how long you can hold on to the rental car.
- Lower Expenses: From the analysis above, it’s clear that using services such as OLA and UBER is cheaper than maintaining a personal vehicle.
- Better Financial Flexibility: One can achieve multiple financial targets by directing the money saved from not owning a car towards investments.
3. The Global Perspective: Public Transport Culture
For example, Singapore. The whole nation has complete dependency on pliable public transport, which includes buses, trains and taxis. Interestingly, even the millionaires in Singapore travel by public transport, which highlights the fact that owning a car is not necessary. A cost of owning a car in Singapore can go up to Rs. 35-40 lakh, a far cry from India. This staggering difference in cost reveals why public transport is so vital and why other forms of transportation should be reasonably priced.
And just like in Singapore, you should consider transitioning to a public transport culture. Not only will it cut costs, but it would also combat traffic and pollution, positively contributing to the environment.
4. Is a Car Really an Asset?
While cars may feel like an asset, it’s essential to understand how cars work as a “business liability.” Cars need consistent servicing, upkeep, and continuous financing. Unlike most assets, cars do not generate revenue. Rather than purchasing a car, think of ways to invest in assets that appreciate over time.
5. Who Should Buy a Car?
Think of scenarios in which buying a vehicle will be optimal for you. These are a few examples where car ownership is more suitable than leasing a vehicle or relying on public transport:
- You have a stable profession and have settled in one place.
- You need a vehicle for constant long-distance travel or for living in communities with inadequate rail and bus coverage.
- You understand the potential expenses in terms of maintenance, loan payments, and fuel costs involved with owning a vehicle.
Key Takeaways
- Calculating the actual expenses per kilometer is crucial when considering owning a vehicle.
- Using car rental services or mobile applications for drivers like Uber or OLA can save money on transportation.
- Renting a car has a competitive advantage in terms of costs if you frequently relocate or change jobs.
- Relatively reliable forms of travel that bypass the need to purchase personal automobiles like buses, subways, and train systems are especially helpful in more developed urban areas.
