Think Before Taking a Car Loan!

Published: November 25, 2012 at 5:36 pm

Last Updated on

Thinking of taking a car loan? Hold it right there! Did you know that the value of a brand new car depreciates by 20% when you drive out of the showroom! Add to this a 15% depreciation in value each year (assuming normal wear and tear) the govt recommends!

This implies in the first few years and certainly before you pay out the loan the value of the car will be lower than the balance in your car loan!

Suppose you didn’t take the car loan but instead invested an amount equal to the EMI you intended to pay, could you buy an used car in 2-4 years and safeguard yourself against the initial steep depreciation in car value?

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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10 Comments

  1. People know this deep down their heart… but they always ignore it (instant gratification)…..
    You gave this proof, strong enough to sit and think ….
    Thank you Pattu …..

  2. No matter, how hard the sensible thing is said but the emotional part of our brain ‘ll over financial part or should I say rational part. Common sense suggests, we do not need a car for parking it most of the time in our own house, yet We go for it.

    Thanks

    Ashal

  3. IMHO a car purchase should never looked with an investment perspective. Just like we don’t treat insurance as investment we should also not treat motoring as an investment choice. It’s a consumable and the loan just increases the overall cost of it. For some the benefits of this choice are worth the cost.

    Also a note of caution on used cars : buying used cars and saving on the depreciation brings with it its own can of worms. Used cars carry the risk of tampered odometers , and other service related problems.

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