Cars are slowly turning from being a luxury item to a necessity. We spend a major portion of our lives travelling from one place to another – wouldn’t it be much more convenient if we had a car? More recently a car is not just seen as a mode of transportation but also as a status symbol. Many say that a car is an investment while others consider it to being a financial burden. Today we shall examine both sides of the argument and come to a conclusive decision.
Many individuals consider a car to be an investment because of the fact that you are obtaining an asset after you purchase it. An asset which you can later sell when you choose to buy a different car. However, one point that is often ignored is that a car is that it is a depreciating asset. What is a depreciating asset? A depreciating asset is one whose value reduces over time. Thus meaning that when we purchase a car at 7 Lakhs but the second it has been sold to us it starts to lose value. Perhaps after 3 years of using that car, you wish to sell it, then the value of the car becomes perhaps 6 lakhs. This means that after selling a car which you have used it tends to never bring a profit – it doesn’t even sell for the same amount you bought it for. However, it is true that in times of need selling a car will bring in cash and liquidity.
A car can be a financial burden depending on the way in which you chose to finance it. If you decide to buy a car without any financial help, for example by emptying your savings account, it can be a financial burden. However, if you do, it is still a financial burden as you now have less money than if you would have chosen other ways to finance the car. On the other hand, if you choose to take a loan on a car, it is definitely a financial burden as you would be compelled to pay equated monthly installments (EMI) on your car. If you fail to pay the charges you would be subject to getting your car being taken away from you. This is because the car is held as collateral. Collateral is basically an assurance to the bank that you will pay the monthly fee.
When taking a car loan it is exceptionally important you understand your credit score. A credit score allows for the bank to understand how likely you are to pay back your loan. If you have a good credit score you will be given a higher loan from the bank. Once the bank informs you about how much percent loan you will be getting, it is now up to you to finance the rest in order to get your car. For example, the bank grants you an 80% loan the rest 20% should be paid by you. However after purchasing the car, every month you must pay the bank a particular amount. The bank will ensure that you pay back the 80% plus interest.
In the long run paying for your car entirely in cash is beneficial, however, it may not be possible for everyone. For example, if you have the funds to pay for a 5 lakh car in cash then it is highly recommended to do so because if you choose to use a car loan to pay for your car then the interest charged must be paid as well. In the long run, using the car loan to fund a car is more expensive than paying for it in cash because a car loan includes the payment of interest which is not included when paying via cash.
A car is a very useful asset to own because it lessens the day to day spending on rickshaws. Furthermore, it allows for an individual to reach their destination occasionally quicker than if they had taken the bus or the rickshaw. However, if we consider the various environmental impacts it is not wise to purchase a car. A car can be a very useful thing to own especially if you in a financial position to afford it. However, we must also consider that this could have been money used for other purposes such as investing in mutual funds.Tags: # cars, how to finance your car
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