The Covid-19 pandemic has redefined social interactions, with distancing becoming the norm. People are looking at ways to avoid infection in the course of routine activities such as commuting to work. Public transportation is being seen as hazardous. Therefore, safe transportation is now a priority for many Indians.
A recent survey reported that the pandemic has forced people to consider buying personal transportation to avoid the crowded modes of public transportation. The survey also revealed that in the post-Covid era, demand for personal vehicles may rise by 15%, fuelled by people over the age of 35
The health risks notwithstanding, the pandemic has also created economic problems, which may make it challenging for anyone to afford a new vehicle at a time jobs and incomes are being cut. Therefore, here are a few things to keep in mind if you’re looking to buy your first car in these times.
New Or Used?
The choice of car you want to buy would have an implication on your finances. This means that you will have to first assess whether you can afford a new car or can settle for a used car that can suffice your needs. The latter is obviously cheaper. Loans are available for both options. As such, loans for used cars are slightly pricier than those for new cars. You must evaluate what works best for you in the near term. The key is getting through this testing phase in the safest manner with the lowest financial stress. You should spend your money carefully during this crisis because either option involves capital expenditure, and it will take you a while to recover your spends, especially if the ongoing crisis continues. You can also consider buying a basic variant of your chosen car if you had initially set your eyes on a top-end model to save money. However, in doing so, do not compromise with the safety features like airbags. You can also check out compact SUVs, budget sedans, and hatchbacks if you find buying a higher-end or luxury vehicle an expensive affair in the current scenario.
Can You Afford A Loan?
Before you take any kind of loan, check your credit score. You can avail your credit report for free by going online. If your score is over 750, you may be eligible for some of the best loan deals. If your score is lower than 700, you may have to pay higher interest. Beyond this, you should ask yourself if your existing income can tolerate a monthly loan payment. Come what may, you’ll need to pay your dues. Ideally, all your EMIs combined should be under 40% of your take-home pay. Also, you’ll need to be ready with the margin money because a loan will cover typically up to 80-90% of the total cost of the car.
What To Buy & What Not To Buy
You never buy just the car. You must also pay for accessories, insurance, registration, and taxes. Factor these into your budget. Registration and taxes can’t be avoided since they are legal requirements. However, insurance and accessories can be bought for any budget. Insurance can be availed in various forms: from a basic third-party cover to a comprehensive cover, what you want to buy depends on what you can spend. The more you spend, the higher your coverage. With accessories, there may be a temptation to buy the choicest items such as an audio system and premium upholstery straightaway. But remember that you don’t need to buy these all at once. You could buy them along with the car or as and when your finances permit.
Availing Financial Schemes And Discounts
Auto dealers have come up with various finance schemes like buy now pay later, balloon payments, step-up EMI, and loans of larger tenure for the comfort of the car buyers. You should assess your financial position before making a choice. You should compare these various financing schemes on charges and total interest to be paid. For instance, a step-up EMI would allow you to make smaller payments for the initial years but the payments get bigger later as your income increases. There’s a general air of uncertainty right now, and therefore you should understand how a long-term loan could impact your finances and what you would have to do in case income streams dry up for any reason.
Besides the above-discussed points, your focus in these financially challenging times should be to save more and spend less. If buying a car is a necessity, go for it but stay within a budget. Be aware of the various charges associated with the purchase as well as a car loan. A bit of homework can go a long way in saving you money.
The author is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.