NEW DELHI: The Reserve Bank of India’s Monetary Policy Committee (MPC) on Wednesday hiked the key repo rate by 25 basis points (bps) to 6.25 per cent. This means all home and auto loans are now likely to become more expensive.
While automakers feel it will discourage people from buying a vehicle, tax experts say that present circumstances are not favorable to make a purchase.
“From an automobile industry perspective, not only will the increase in rates impact the cost of funds for manufacturers, but also the customers who are seeking loans from banks to purchase cars,” said Shekar Viswanathan, Vice Chairman & Whole-time Director, Toyota Kirloskar Motor. However, it is not just the hike in interest rates, rising oil prices is further demotivating people from buying cars. A leading financial planner said that rising diesel prices is already digging a hole in people’s pocket and if one decides to buy a vehicle now, he will have to spend more on fuel and EMIs.
Rahul Agarwal, a Delhi-based charted accountant said that first-time car buyers should wait for things to improve at least on one front. “It is being projected that inflation rate will go up in the coming quarters, so having a new loan against your name is not the best of advice to give. It can affect your personal finances,” he said.So what should one do till there is some relief? Experts say one can continue to use on-demand services of aggregators (Ola and Uber) for some time as high competition between them has kept the fares lower than the overall expenses of owning a car.
A simple calculation says that monthly expenses of owning a Rs 6 lakh vehicle come around Rs 22,000 if the car carries an EMI of 15,000(9.75 per cent for 48 months), Rs 4,500 is put on fuel (30km drive per day) and some amount is spent on maintenance charges such as parking fees, insurance premium etc. If you are employing a driver, then the cost will further go up by Rs 10,000 per month.
On the other hand, aggregators can cover a similar distance in Rs 250-300, with almost no extra charges such as driver’s salary, parking fees, toll tax etc. On a monthly basis, one ends up spending Rs 9,000 and if the person is ready to compromise and share/pool his ride with other commuters, the prices will further come down significantly.
However, aggregators come up with their own setbacks; biggest of them is they don’t give a sense of ownership. After paying all the EMIs, you get to own the car, though its total value comes down significantly. Other issues such as safety and dependence might push one to buy a vehicle but purely on economic terms, aggregators, at present, scores over owning a car (EMI and driver’s salary included) and has already become a replacement for many city dwellers.
The answer to the question whether one should really make a purchase now should be left with the buyer. “If the buyer different aspirations and can bear the higher EMI with ease, he is good to make the purchase anytime he wants,” the above quoted financial planner said.