Can you afford a new car?

Here's a checklist to find exactly that!

What can feel better than going to a car showroom and driving out on a new set of shining wheels? That blue sedan or the red hatchback which you always wanted to buy is now yours! Wow! But just hold it.

Have you considered the real and total cost of owning a new vehicle?

Did you know that the highest depreciation of a new car is in the first few months?

If a month later you decide to get rid of your car, be ready for a 40 per cent discounted price!

Here is a checklist to find out if you can actually afford a new car:

1. Do you have enough money to make a down payment?

If you have a decent Form 16 today your banker is more than willing to give you an auto mortgage. However the higher the down payment that you do make, the better the terms that you can get from the banker.

2. Have you considered the price of fuel?

While fuel prices have been on a downswing in recent months any volatility in international crude prices can bump up your fuel costs. By any estimate be prepared to shell out Rs 3000-4000 per month on fuel. This could be as high as your auto EMI.

3. Consider the cost of insurance

A comprehensive insurance on your car will cost you about 5 per cent of your vehicle costs. If you think this is high, welcome to US. Insurance is about 10 per cent of the cost of the vehicle.

Even in India expect insurance rates to move up, not down.

4. Other 'friendly' users

If you have a new set of wheels will your friends want to take it for a spin? Please provide for friends, brother, sister, brother in law, etc wanting to borrow. Here the costs of depreciation, fuel, risk... all of this could hurt you, and I hope you have considered these costs.

5. As a thumb rule add 30 per cent to your fuel costs + EMI as a 'load' while considering a car. For example if you are paying Rs 5000 as EMI, and Rs 4000 as fuel charges, your monthly outgo could be 5k+4k +2700 (30 per cent of Rs 9,000) = 11,700.

Photograph: Courtesy, Tata Motors