March 13 , 2013
A vehicle purchase (car or bike) is often one of your early goals. Buying a car is, in fact, the second most expensive purchase that a person makes, after a house. You wonder whether to buy it on loan, or wait for a couple of years and purchase it outright. You may worry about how much EMI you can pull off on your loan, without affecting your monthly expenses. A related question is how expensive a vehicle to go for.
We shall look at the financial aspects of vehicle purchase. How much is comfortable, how much is too much. Also, well look at how you can get a loan and insurance for your vehicle. Insurance, after all, is one area we pay scant regard to (vehicle dealer gives us a readymade package), and often lose several thousand rupees a year as unnecessarily higher premium.
1. Get the right vehicle
Before you head to the dealer make sure what kind of a car or bike you need. If it is a bike you want to purchase do you require one that is great on fuel efficiency or style? If its a car that you have on mind then is it a hatchback, wagon, van, sedan or SUV that will be right for you? If you rush into a car deal without planning you can endup making a Rs 2,00,000 mistake, at the average cost of new cars today.
Determine what purpose the car will be used for. Are you going to be using it mainly for commuting to work, weekend outings, family purposes? If you must ride/drive for over half an hour to work youll need a bike/car that is high on fuel efficiency and offering reasonable comfort. If you have a big family with more than 5 people who will use the car frequently a minivan or sports utility will be essential. With careful planning you can settle for a vehicle that you need and you really wanted.
2. What can you afford?
If your bike/car is bought on an auto loan it is most likely going to be the next biggest item on monthly expenditure. Remember to take into account such items as insurance costs which typically ranges from 3% to 5%, state registration charges and other accessories.
As a rule make it a point to not exceed spending more than 20% of your total monthly income on vehicle expenses including EMIs, insurance, fuel and maintenance.
In the past few years used cars scenario has changed drastically. There are plenty of well-kept 2-3 year old cars available that are reliable and cheap. If buying a used bike or car from individuals, never make a deal before getting it inspected. Whether to buy a new/used vehicle all boils down to money.
A new vehicle means higher insurance premiums. Although the insurance cover offered by different companies will remain the same based on IDA, insurance premium will vary. Factors that determine premium include model, area or locality of registration, expected usage in terms of mileage, theft rate, age of vehicle (if pre-owned), safety threat, etc.
Things you can do to lower your vehicle insurance rates:
Driving safely is important not only for insurance purposes but also for your life. The logic for lower premium is safer driving implies lower probability of accident and therefore claims for the insurer. Safe driving includes driving a vehicle that is safe, which comes with adequate safety gear such as air bags, seatbelts and antilock break. If it is a pre-owned vehicle then choose one with a clean history of theft and accidents. Nominating driver/s and restricting use of the vehicle will help reduce rate.
Adding luxury gadgets like night vision, ultra sound sensors, etc will increase your premium rates.
Use the aid of internet to get a fair idea of great deals before you land at the dealers lot. Check out websites of manufacturers and third party vehicle dealers and gather information on quoted price of new/used vehicles you have in mind with specifications as desired model, engine type and so on. Narrow down your list to a couple of cars that fall in your requirements and affordability.
You can get useful information on sites such as carwale.com, automobileindia.com, carazoo.com, autoindia.com.
5. Arranging for finances
Before you shop around for the vehicle, get your finances ready. If your buying will be financed by an auto loan, having a pre-approved loan will put you in a better position to negotiate vehicle price with the dealer. Average repayment period for auto loan varies from 12 months to 60 months. You can avail loan for up to 90% of the ex-showroom price of the vehicle depending on vehicle model, your income level and such other criteria.
If you can wait enough, buy a used bike/car with whatever money you can afford and use it till you can. Meanwhile build up your new car fund with your monthly earnings. Deposit the money for a new car EMI in your bank and purchase your dream car in time without shelling out a loan interest. Whatever you do, borrow as little as possible.
Be cautious about manufacturer financing. Unless you qualify for a zero interest loan, manufacturers financing may not be the best option for getting financed. Check for the price rebate v/s lower interest rate offer for selecting the best deal.