6 ways how cars keep you poor

Must have — :P

As I have mentioned in my previous articles, I greatly admire the concept of minimalism. Minimalism is basically — living with less. The benefits are innumerable and someday I will put together an article that summarizes everything. Till then I am on my way to becoming a minimalist one step at a time.

Today I am back with a common trend that the millennials are so fond of, namely buying a car. Now you would think, what is the big deal in buying a car. Isn’t it a necessity these days? Well, it sure is. This article is meant for those times when style supersedes necessity.

While reading, let us imagine a car you have always dreamt of purchasing. If you have already purchased it, then you can consider that itself. Let’s start —

1. Why does the base model exist— A normal car these days costs about 10 Lacs INR. I am considering a stable model of a car because no one goes for the base model of a car as it doesn’t come with useful features. We always end up buying mid or top-end models. Hence the 10 Lacs figure. Believe me when I say it will cost more.
2. One more loan — Now most of us don’t have disposable income in that order of 10 Lac with us. So what we do is make a 10–20% down payment and loan the rest of the amount. Let’s say you paid 2 Lac of the 10 and loaned the rest 8 Lac from some bank. At present, the car loan interest rates are 9%. Again this could be different for different people but I am taking 9 just to be safe. So a loan of 8 Lacs for 5 years at a rate of interest of 9% comes to around 1.96 Lac of interest. If you take a loan of 8, you will pay 8 + 1.96 = 9.96 in return. Let us round it off to 10 itself as there will be some processing charges and stuff along with it too. That means around 17k a month to be paid as EMIs. Hence for a car of 10 Lacs, you pay 12 Lacs.
3. The Govt steps in — Like they say “With more power comes more responsibility”. Just buying the car doesn’t do right? You have to pay to drive on the roads of the govt. This costs anywhere around 1 to 1.2 Lacs. Post that you have insurance which costs around 50k initially and then around 10k per year. So that comes to 1.2 Lac + 50k + 4 * 10k = 2.1 Lacs.
4. Fuel charges —We are all aware of the petrol prices these days. I am assuming you have dreamt of a petrol car as diesel cars are costlier. While writing this, petrol costs 105 per liter in my state. This could again vary from the place you are dreaming from. Given the amount being spent on your car, I am sure it won’t be giving a mileage of more than 15 km per liter no matter how much the showroom people have told you it will give 20–25 kmpl. Now assume you have driven 50k km in 5 years. It’s usually more since most of us prefer long drives. Given your mileage of 15km, you will need approximately 50,000/15 = 3334 liters of fuel. This is going to amount to 3334 * 105 = 3.5 Lacs. Again this is without adjusting for inflation since petrol prices have only increased. If you take data for the last 5 years it has almost doubled in price. So 3.5 Lacs to drive your car.
5. Maintenance — It doesn’t end there does it. The more expensive a car is the costlier it will be to maintain it. Let us assume you will be spending around 40k on servicing and maybe doing some other fancy accessories and stuff. Again this will only be more than 40k but let us assume that for now.
6. Resale value — This is the best part. Are you still dreaming? Then there is a new car in town. Let us dream bigger. So you decide to sell your current car. Now we always think I will look after my car like my pet and it will be spotless. Just imagine this, your old car will be someone’s new one and while dreaming did you ever dream of an old car? So chances are your old car won’t be in much demand either. Let us say you get 7 Lacs for your 10 Lacs car of 50k km and 5 years old if you are lucky. Great.
7. Sum up — Let us add up our costs then. Down-payment + Loan + Govt + Fuel + Maintenance = 2L + 10L + 2.1L + 3.5L + 40k = 18 Lacs. Ah! Nice one. So you have spent 18 Lacs and on selling you get 7 Lacs. So 11 Lacs down the drain.

Now, this is not a big thing, compared to the memories you will create, the friends you can show off, the pictures you can click, and the comfort you get while traveling. Yes, please do kid yourselves with these things as that is all you are left with in the end.

The next time a YouTuber tells you this is the most powerful car in the segment and has a 5-star rating on NCAP, ask him what car he drives. Lol. The digital world has made it possible for the middle class to buy everything a celebrity can these days. Just take a ratio of how many people had loans in your previous vs the current generation and you will be amazed.

The talent to take loans and buy stuff shouldn’t impress you. Being debt-free should, however. But hey, it’s your life and it’s on you to live it to the best.