Our emotions play a major role in many of the financial decisions we take from time to time. one such decision is whether or not to go for owning a car and if we do buy one, should we buy it on a loan.
Financial wisdom says, “don’t buy a car if you don’t need it every day to commute and more so if you are buying it on loan”. A car is a depreciating asset that loses its value over time. And, if you are buying a car on loan, you are paying more than the actual value for something that is going to lose its value and become a liability over time. In fact, the moment you own it, get a handover of the keys, and take it out of the showroom it loses its monetary value.
If you do your calculations adding up all the loan-related expenses, maintenance, insurance premiums, and fuel costs, and compare it to using car services for commuting over the same period, the results might surprise you.
But for a family, having a car is not always about commuting, it’s many a time an emotional dream and aspiration and thus cannot be ignored and this is where it becomes an interesting case. So, what could be the solution? The solution would vary from family to family and needs personalized attention and planning accordingly to accommodate the aspirations as well. But if you have to have some generalized solutions, the following might help.
The best option: The best option would be to buy the vehicle in full payment if you have the money. Buying a car on loan is not only a huge setback to your finances but can also have other implications related to unforeseen life situations. If you want luxury, it is always better to prepare yourself financially for luxury and not buy them on loan. It is always better to earn interest and buy luxury than to buy luxury and pay interest.
One of the options: One of the options could be waiting a couple of years and creating the fund needed through investments during the period and buying the car in cash or paying up most of the value upfront and keeping a very small part, if needed, for a loan.
If there is no other option: If there is no other option but to take a loan for a major part of the price it is better to keep the duration as small as possible so that you pay lesser interest. Then also, check out the possibility of waiting for a year at least to create some downpayment.
But financial wisdom still stays the same. Do not buy a car if you do not need it every day and avoid taking a loan for buying a car.