Confused between buying new or old car? Here is the third option; see if you can benefit

Buying a car is an important decision for most salaried people. They usually graduate to a 4-wheeler after years of driving a bike or a scooter. It is probably the second most expensive purchase most people make, after house. The decision involves a lot of money and is always tough to make. Most buyers often decide to choose between buying a used car or a new car. While the used car comes relatively cheaper, you will have to shell out more on maintenance. A new car can save you from a lot of trouble in terms of negligible breakdowns, but would require a bigger budget to make the initial purchase. 

Vaibhav Agrawal, Head Of Research, Angel Broking Ltd told Zee Business Online that the prospect of having their own car is in itself quite exciting for all. "Pose this question to anybody and the typical response would be that the joy of having your own car is different. But then economic reasoning has to go beyond that," he said. However, there is a third option that can give you access to a car of your own and it will also not put a hole in your pocket. 

What are the expenses in buying a car?

There could be nothing better than arranging the entire money and buying a car without loan. Unfortunately, that isn't the case with most people. Buyers are forced to opt for a car loan and end up paying more than the original price of the car in the form of EMIs. Agarwal explained that even if you pay an interest rate of 10 to 12 per cent, the overall amount paid would be at least 30 per cent more than the principal amount. 

"You rarely buy the car cash down and it is normally on EMIs. Even assuming that you pay an interest rate of 10-12% on the car loan, you pay 30% on top of the principal amount as interest. That really adds up to your cost over time," he said.

Even after you purchase the car, there is regular maintenance cost which also adds to the expenses. This should be kept in mind even before purchasing the vehicle. "There is the regular maintenance cost of owning a car. The fuel, repairs, replacements, servicing, insurance wear & tear and PUC certifications also add up to the cost," Agarwal said. 

Why car loan is bad?

Unlike a home or education loan, car loan is a bad loan. This is because the value of the vehicle depreciates with time and it will not give you any returns over time. Agarwal explained, "When you buy a car and drive it to your parking lot, you have already lost 20% of the value. That means your car loan is going to be on negative equity for the first few years."

What is this other option?

Instead of buying, rent a car. Unless you are a frequent traveller or go on long trips, it does make a lot of sense to rent a car. There are a number of platforms available in India through which you can rent a car. "Owning a car does make sense if you are a frequent traveller. Otherwise rented cars are better as it is hard to justify the related costs of owning the car," Agarwal explained. 

Also, you can opt for cab aggregators like Ola and Uber for small distance travels.