Can you really afford a car?

With carmakers ready to offer some big discounts on the sticker price after the slowdown in car sales, you may be tempted to think whether you can afford a car.

However, before you take the plunge, do check if you can afford the recurring expenses of maintaining a car.

When added up, these recurring expenses can be far higher than the price you shell out to drive it home from the showroom.

Monthly fuel bills, several rounds of paid service and rent for parking space in crowded cities, all add up to a sizeable sum much bigger than the initial cost of the car.

And remember, a car will not fetch you more than half its price in re-sale value after five years.

We ran a rough calculation on the true cost of owning a small car and found that the actual expenses on the car over a five year period can be three times its showroom price. Surprised? Here is how we worked it out.

EMI and Insurance

Many buyers raise a loan to fund the purchase of a car.

In fact, thanks to festival season, today you can pay as little as Rs 15,000 upfront and drive home a car.

But when a car is purchased on credit, interest costs on the loan adds significantly to the showroom price. At a realistic rate of interest of 13.75 per cent an annum, a car loan will have a monthly equated instalment (EMI) of Rs 2,300 for a lakh.

For a car costing Rs 5 lakh, the EMI would be Rs 11,569.4. That sum paid out over five years, adds up to Rs 6,94,140, which is Rs 1.94 lakh more than the original cost of the car!

Remember this is assuming that interest rates don't move higher from this level.

In reality, rates on floating rate loans do move up and down over the tenure of the loan.

Next comes the necessary evil – vehicle insurance premium. While third-party liability cover is a legal requirement, you may like to add on a package motor insurance policy which covers the vehicle too, given the perilous city roads. How much does this cost?

On a Rs 5 lakh car, the owner may shell out a minimum of Rs 40,000 (could go up to Rs 60,000 if he doesn't manage any no-claim bonus) over five years.

This is reckoned at current vehicle insurance rates. If you end up claiming sums from your insurer for every little scratch and dent, your premium will be jacked up and you will end up shelling out more.

Fuel and maintenance costs

This number could make your head spin.

Given that city driving entails inching along a centimetre at a time, we've assumed that your petrol car gives you're a mileage of 12 km to a litre.

A person driving an average of 30 km a day (just zipping to and from the office) will spend around Rs 3,50,000 over five years on fuel bills (assuming petrol prices at Rs 70 a litre).

Your fuel bill however could be much higher if petrol prices rise. In the last one year petrol price has risen from Rs 58 a litre to Rs 70 a litre.

Maintenance costs are a big factor too. Routine servicing of a hatchback of 2008 model costs roughly Rs 2,500-3,000 on a single service.

The number of times one may service the car depends on pure luck. If your vehicle is trouble free, you may get away with once a year after the initial 10,000 km.

However, if you have a pesky neighbour who puts a ding in your car every time he backs out, be prepared to shell out Rs 4,000-5,000 each time for tinkering and paint work.

Some of the components such as the battery, wipers and tyres have to be replaced at intervals specified by the manufacturer.

In the accompanying table we have taken into account costs on three essential replacements, plus a flat amount for variable maintenance costs. We have accounted for six routine paid service visits for the car over a five-year period.

We also worked in the cost of changing tyres and the battery (tyres have to be changed after 40,000 km and the car's battery in three years). We added Rs 1 lakh for five years towards other repair work or malfunction of components.

While most car buyers may think of all of the above, they will miss out on one of the biggest hassles of owning a car- finding safe parking space.

Cost of Parking

Though ‘parking is at owner's risk', one often ends up paying for it. Rented apartments in major cities charge an additional Rs 2,000-3,000 every month for the parking space that comes with a flat or house. And when one buys a new apartment, the parking space for one car comes at a capital cost of around Rs 2 lakh.

Taking the car to the mall or multiplex? That comes at a hefty parking fee too.

Shopping malls in Chennai collect an average of Rs 80 for three hours.

Assuming that a person takes out his car every weekend and spends eighty bucks on it he will spend close to Rs 20,000 over five years for parking (shopaholics who take more time at malls, have to budget for more).

Finally, if you are going to hire a driver for the car then you would have to shell out Rs 6,000-7,000 a month additionally.

Still think all the expense is worth it for the comfort of zipping around in your own car? Happy driving, then!

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