Mercedes E-Class vs BMW 5-Series vs Audi A6 vs Jaguar XF
Luxury cars depreciate faster than mass-market cars

The automotive industry has witnessed a significant turmoil and we’ve discussed reasons for the decline in sales a lot of times in the past. The ongoing Covid-19 pandemic only made it worse for most industries. Car sales were nil in the month of April 2020 and we saw manufacturers churning out new finance schemes, discounts, etc. to lure buyers.

Right from mass-market automakers to luxury automakers, everyone has come out with interesting schemes. While these companies offer finance options with leading banks, a lot of companies also have their in-house finance arms. In the last few weeks manufacturers have been sending out communications about their new offers and full marks to all of them for that.

Mercedes-Benz also introduced a 10-year finance scheme for their cars and I got discussing about this with someone. My personal opinion about this is that if you need to take a loan of such a long tenure for any car, let alone a Mercedes, you probably cannot afford that car. Cars are depreciating assets and they lose their value really quickly so there’s no sense in paying EMIs for 120 months that too with interest.

Most customers won’t even use the car for 10 years and maybe sell it, get another one and again start off on a fresh loan. There are lots of costs associated with vehicle ownership. It starts off with the downpayment, then the monthly EMIs, parking charges, fuel bills, service & maintenance costs, insurance renewals and so on. If you actually sit and add up all these costs, you’ll be shocked at the amount that you see.

Now imagine someone buys a Rs. 50 lakh car on a 10 year loan. Out of this, we’ll consider a downpayment of Rs. 10 lakh and a loan of Rs. 40 lakh. With an EMI of Rs. 1499/- per lakh, the total monthly EMI is close to Rs. 60,000/-. Now calculate how much you’ll end up buying over the entire tenure. Much, much more than the price of the Rs. 50 lakh car. Also, what will be the resale value of a 10 year old luxury car?

I’m not even calling out Mercedes or any other automaker for launching these finance options. It is their job to offer attractive schemes and they’re doing it. These long term loans might be useful to people who have multiple people in the family earning high salaries and can manage these costs.

What I feel is that instead of buying your favourite car on a long tenure loan and really stretching your finances, just scout the market for cars which are slightly used. Look up the classifieds for cars that are 1-3 years old and have run less then 25,000 kms. You will be surprised to see the prices because as I said earlier, cars depreciate a lot and most of the depreciation happens in the first few years. If you opt for such a car, not only do you get huge financial savings, but you also get warranty coverage since most manufacturers offer good extended warranties and service plans these days.

You probably might not have to take a loan for such a car, and even if you do take a short term loan, you’ll save a fat chunk of money despite the fact that used car interest rates are higher than new car interest rates. This was just my opinion and I know many people won’t agree with it because at the end of the day, a new car is a new car. Buying a car is an occasion for most people in our country so a lot of them do not prefer buying a used car. Let me know in the comments below what do you think about long tenure car loans and whether you’d opt for one.

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3-5 year loans are still fine but I feel anything longer than that is a no-no