Summary
- A car loses its value over time
- Factors that reduce a car's value
- EMIs can turn into bad debt
- EMIs cost you more than an SIP
- Calculation of SIP needed to buy a ₹25 Lakh car
A car loses its value over time
One of the main reasons is that cars are subject to wear and tear from use, which can reduce their value. As a car gets older and is used more, it is likely to require more maintenance and repairs, which can also decrease its value.
In addition, cars are subject to technological advancements and changes in consumer preferences, which can make them less desirable and valuable over time. Your petrol or diesel car won't find a place for itself in the market dominated by EVs, which are expected to become cheaper in the future.
Finally, the market for used cars is generally more competitive and saturated than the market for new cars, which can also drive down the value of older cars.
Factors that reduce a car's value
- Age: Older cars tend to depreciate faster than newer cars because they have been in use for a longer period of time and are likely to have more wear and tear.
- Mileage: Cars with high mileage tend to depreciate faster than cars with low mileage because they have been used more and are more likely to have mechanical problems.
- Make and model: Some makes and models of cars are known to depreciate faster than others, either because they are not as popular or because they have a reputation for having mechanical problems.
- Location: Cars in certain locations may depreciate faster than others due to differences in demand or because there are very few service providers in the area for that make and model.
- Economic conditions: Economic downturns or other changes in the economy can affect the value of cars, causing them to depreciate faster.
EMIs can turn into bad debt
An EMI turns into bad debt when the borrower is unable to make the required payments on their loan. This can happen for a variety of reasons, such as job loss, illness, or other financial difficulties.
When you start an EMI you're committing to paying off your purchase. This is like working for your cake after you've already eaten it, it's mentally taxing.
Some of the potential long-term consequences of bad debt include:
- Reduced credit score: If you are unable to make timely payments on your bad debt, it can negatively impact your credit score. This can make it more difficult to qualify for other loans or credit in the future, and can also result in higher interest rates on the credit you do receive.
- Limited financial flexibility: Bad debt can quickly add up, and if you are unable to repay it, it can limit your financial flexibility. This can make it difficult to save for important goals, such as retirement or buying a home, and can also make it difficult to cover unexpected expenses.
- Stress and anxiety: Managing bad debt can be stressful, and if you are unable to repay it, it can cause anxiety and other mental health issues.
- Legal action: If you are unable to repay your bad debt, your creditors may take legal action against you, such as garnishing your wages or seizing your assets.
EMIs cost you more than an SIP
SIPs are typically used as a way to invest money in mutual funds on a regular basis. With a SIP, you agree to invest a fixed amount of money in a mutual fund at regular intervals, such as monthly or quarterly. The money is automatically deducted from your bank account and invested in the mutual fund.
EMIs, on the other hand, are typically used to pay off loans. Basically, the difference is “In an EMI you pay interest and in an SIP you earn interest".
In general, SIPs are a better option than EMIs.
SIPs can help you save and invest for your long-term financial goals, such as buying a car. This can be a more effective way to build wealth than using EMIs to repay a loan.
Here's the difference in cost between an SIP and EMI for the following assets -
Calculation of SIP needed to buy a ₹25 Lakh car
SIPs allow you to invest in a diversified portfolio of stocks, bonds, and other securities, which can help to reduce risk and potentially generate higher returns over the long term. SIPs allow you to invest small amounts of money on a regular basis, making it easier to save and invest even if you have a limited budget.
We've calculated the perfect plan for you to own a car worth ₹25 Lakhs in 6 years by investing only ₹20,000 per month.
If your aim is to own an expensive car of your choice in the future, start now and work towards it. In any case, the car's value will depreciate. An SIP will help you earn more than your goal which you could use to maintain the car thereby increasing its operation life.
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