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Okay so you want to buy a car. And you think that a hatchback,entry level car, is affordable at around Rs 5 lakh on the road. Think again. Over the course of the next five years, you will probably spend over Rs 10 lakh on it. That’s the Total Cost of Ownership. The cost of a car is not just the down payment at the dealership and the EMIs thereafter. If one were to sit down and jot down all that is spent on a car, rough calculation shows that of  cost of owning a car (even a small car such as hatchback) over a five year period can be two-three times its showroom price!  There are several other costs that you need to factor in before buying yourself a car which we explain in the article.

Vehicle Expenses

Vehicle expenses fall into three categories:

  • One-time costs : Purchase price, sales tax, registration fee, etc, are the one-time costs of any vehicle. Our article Understanding Ex Showroom Price and On Road Price of Vehicle explains ex-showroom and on road price of vehicle.
  • Recurring or ongoing costs : ongoing costs include fuel, insurance, routine maintenance, depreciation and the cost of driver
  • Emergency costs: Emergency costs include towing and repairs.

All these need to be considered while determining the real cost of car ownership.


The loan payment for car includes not only payments towards the original loan, but also the interest due on it. Interest costs on the loan adds significantly to the showroom price. Details of car loan are like

  • Car Loan Amount Varies based on car model.
  • Car Loan Interest Rate : 10.50% to 16.25% floating,Monthly reducing balance
  • Processing Fees : 1 to 3% of loan
  • Car Loan Tenure 1 year to 5 years
  • Pre-closure Charges 3% to 6% of foreclosed amount

At a rate of interest of 13.75% per annum, a car loan will have a monthly equated instalment (EMI) of Rs 2,300 for a lakh. For a car costing Rs 5 lakh, the EMI would be Rs 11,569.4. That sum paid out over five years, adds up to Rs 6,94,140, which is Rs 1.94 lakh more than the original cost of the car! Calculations are shown in image below. Yes, you can prepay your car loan. However banks charge a prepayment penalty charge for this.

When the last EMI has been paid the bank’s legal claim to the car ceases to exist. The bank will issue a Form 35 along with an No Objection Certificate (NOC) to the RTO canceling the bank’s name from the RC book. The same process is followed for your insurance policy as well.

Fuel charges

Given the city traffic petrol car gives you’re a mileage of 12-15 km to a litre.  Just going to and from the office,assuming petrol prices at Rs 70 a litre and mileage of 12 km/litre, a person driving an average of 30 km a day will spend around Rs 3,50,000 over five years on fuel bills Your fuel bill however could be much higher if petrol prices rise.


If you’re going to be driving your car, you need to have insurance. While third-party liability cover is a legal requirement, you may like to add comprehensive insurance policy  or one which covers the vehicle too. How much does this cost? On a Rs 5 lakh car, the owner may shell out a minimum of Rs 40,000 (could go up to Rs 60,000 if he doesn’t manage any no-claim bonus) over five years. If you end up claiming sums from your insurer for every little scratch and dent, your premium will increase and you will end up shelling out more.


Scheduled maintenance: Your car needs to be serviced at regular intervals. This varies depending on the car model you drive. Remember to factor in costs per servicing which may vary from Rs 2,000 to Rs 50,000 per trip for the luxury models.  The number of times one may service the car depends on pure luck. If your vehicle is trouble free, you may get away with once a year after the initial 10,000 km.

Some of the components such as the battery, wipers and tyres have to be replaced at intervals specified by the manufacturer.Tyres have to be changed after 40,000 or 50,000 km and the car’s battery in three years

Unscheduled maintenance: Car is a machine which can fail at any time. Fuel pump problems or carburetor problems are some of the common problems buyers face from time to time. You may experience engine part failure which can come as an unexpected expense at any point in time. Be prepared for for such emergencies.

Parking Charges

Rented apartments in major cities charge an additional Rs 1,000-3,000 every month for the parking space that comes with a flat or house. When one buys a new apartment, the parking space for one car comes at a capital cost of around Rs 1-2 lakh. Taking the car to the mall or multiplex one has to pay hefty parking fee too. Assuming average of  Rs 60 for three hours,a person takes out his car every weekend and spends sixty bucks on it he will spend close to Rs 15,000(60 * 52 * 5 = 15,600) over five years for parking (shopaholics who take more time at malls or take often, have to budget for more). Toll tickets and parking expenses are other expenses that you must be ready to cough out money for.

Cleaner and Driver Charges

If you are going to hire a driver for the car then you would have to shell out Rs 5,000-7,000 a month additionally. You also would end up paying 200-400 Rs a month for car cleaner.

Depreciating product

Unlike real estate or gold, car does not appreciate in value (except for vintage car). Drive it out of the showroom and it immediately becomes second hand, if you choose to sell it even within the next half an hour and it will lose almost 10% of its value. The car will go down further by another 30 – 40% in the first year itself.

In the table below we have taken into account various costs




Buying a car


On Road Car Price


Down payment


One-time cost

EMI per month (Rs)


For 5 years at 13.75% interest

Total Basic Cost of Car in 5 Years


Insurance over 5 years 


Average insurance costs including depreciation

Fuel expenses


Kms per litre in 5 years

60,000/12 = 5,000

Runs 60,000 KM,Average mileage is 12 km/litre

Total fuel cost

3,50,00 (5000 * 70)

Fuel cost Rs 70 Rs/litre

Maintenance and Service 


 10,000 km or 6 months

Service Cost


Average service cost of Rs. 10,000

Battery change,clutch change etc




In House


Either paying for it while buying house or renting it at Rs 2,000 per month

In Malls,Movie halls


Total Ownership Costs in 5 Years


Related Articles:

Thanks to festival season, today you can pay as little as Rs 15,000 upfront and drive home a car. Before you take the plunge, do check if you can afford the recurring expenses of maintaining a car. When added up, these recurring expenses can be far higher than the price you shell out to drive it home from the showroom. And remember, a car will not fetch you more than half its price in re-sale value after five years.


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