Car purchase on your mind?
Post Pandemic, we see many new different models of cars running on the road!
Well, as per the article in the Economic Times; the latest data by The Reserve Bank of India shows that ; in the personal finance segment, share of ‘vehicle loans’ for disbursed by commercial banks has increased even more than that of ‘housing loans’.
In the last three years, the loan amount for ‘Vehicle purchase’ has increased to 137% to RS 5.08 lakhs Cr.
On the other hand, housing loans have increased to 47% only to Rs 19.5 lakhs cr.
Banks lend for consumer Durables, Education, loan against gold etc but out of these loans, Housing loans & now Car loan hold a major share!
What must have made this share to increase?
There are many possibilities around this increase car sales & share of vehicle loans disbursements. Let’s look at them-
1. Re- location to different cities post-pandemic:
During pandemic, many people opted to relocate to their hometown or nearby city to their hometown. Work from home option is still given in many organizations.
This must have felt the need to have one vehicle of own to commute easily in any given situation where public transport is not that viable.
2. Reduction in the price gap:
I still remember, when my father purchased a hatchback with top variant seven years ago, it costed around RS 6.50 lakhs. Today, the same model costs around Rs 9.50 lakhs.
But a few years ago, there was a significant price gap between a hatchback & SUV. Today, this price gap is reduced.
This make people buy cars which are swanky, affordable.
3. Higher interest rates on housing loans:
Post pandemic, we have seen ‘rising interest rates’, making ‘houses costly’ to purchase.
Post pandemic, real estate prices have soared & also the interest rates.
Instead of taking big loan with higher interest rates, ‘car loans’ still seem cashflow friendly with lesser loan tenure to pay.
4. Instant gratification:
A house is a need for many but a swanky car gives ‘instant gratification’.
For youth, earning handsome income, who has still not decided where to settle down, opts for a Car purchase easily.
EMIs are affordable compared to housing loan EMIs.
What should you consider while buying a car?
At first, it’s a case sensitive decision which varies from person to person. A car can be a need for some & a luxury for others.
Here is a Simple checklist before buying a car:
1. Check the need:
Check whether you ‘need the car’ or ‘you want it’!
These days, automobile sector has been showing lot of innovations. This has made automobile companies manufacture different car models across all categories.
If you feel the need to have the four-wheeler, then you opt for it.
Otherwise, in big cities you get many car pulling options for your daily commute.
2. EMIs are still on the higher end:
Car loan from State bank of India ranges from 8.60% to 9.65% today, based on different tenures.
E.g. For a car loan of RS 10 lakhs for a tenure of 5 years, with 9% rate of interest can fetch you monthly Emi of roughly around Rs 21,000.
Look at your cashflows first. If the amount of EMI is around 10% to 20%, then you can think of it provided you do not have any other loans
But, on the other hand, if your loan book is full with credit card dues, personal loans if any, education loan, etc then make your car purchase wait!
Your hard-earned money should not consume larger part in paying EMIs.
3. Depreciating Asset:
A car is a depreciating asset! It is not money generating as you use for your own consumption. You need to know this before finalizing the price of the car.
So, you should not put in huge money just to receive depreciated value when you sell it in future.
4. Job stability:
Stability of your income is important before you commit to any loan liability! Car loan is not an exception.
Along with stability of your income, check the nature of your work. If you happen to travel a lot due to your work commitments in different parts of the country or if you are not sure, where will you continue to stay & settle, then think before purchasing a car.
If you change your stay locations then transporting that car often can add to your work too.
5. Remember to get the no-dues clearance certificate once the loan is over:
When you apply for a car loan, you mortgage the car till the time your car loan is not fully paid off.
When you pay it off fully, get the no dues certificate from the loan provider & submit it to Regional RTO office. Then they will assign the ownership to you!
Many people forget this important step once they fully pay off the loan.
6. Never compare your purchase with that of your neighbors or colleagues:
A car is also treated as one of the ‘status symbol’.
No matter how swanky & latest make of the car you purchase, you will always find newer one in your neighborhood or in the office.
People often replace their old cars, within 3 to 4 years to purchase just to ‘match this status symbol of others’.
I urge you to stay away from such practices.
To replace the one, you sell it at depreciated value & pay again for the down payment of the new one for a new car loan with new terms & conditions.
‘Own Vehicle’ is a very good possession to have when you need it.
I think, before purchasing any asset of big cost with a loan, –
• We should look at our present & future cash flows,
• The need to purchase it
• Investing for our future priority goals & responsibilities