Should I buy a new car or lease one?

Ram had a heated discussion with his wife. His car was about 5 years old and his wife was nagging him to buy a new one. As he looked out of his office’s window at the number of cars he shook his head with despair. There must be a better way to organize his travel. Was it worth using a taxi every time he wanted to travel to conduct his trainings or go to his office?

When Ram came to me he wanted a good solution. I said let’s sit at our favorite Excel spreadsheets and do a reasonably detailed calculation that would help him take an informed decision and also convince his wife.  “Which car do you want to buy”, I asked. He hadn’t thought about that. OK, which car do you like? Honda Civic. Cost price Rs.1200000. Do you drive yourself or do you keep a driver. My wife always wants a driver. OK. Minimum Rs.8000 per month. What mileage does the Honda Civic offer under our driving condtions. About 10 Km per liter. How much do you travel in a month by car? About 300 Kilometers.  From these details we were able to easily calculate the monthly expenses for a car and its maintenance using standard addition, multiplication and divison functions and the special ‘pmt’ function. It came to about Rs.10000 per month.  If we hired a taxi like Toyota Innova we would spend about Rs.6000 per month! And we calcuated the expenses at Rs.20 per Kilometer whereas the present rate is a maximum of Rs.15 per Kilometer.  The decision to lease a car was now easy to implement!  P. S.: The equal monthly instalments were for 5 years or 60 months. We have done a quick calculation. You may like to put in some more details like selling the car after five years and getting some money back. You cannot expect more than Rs.200000 at the end of 5 years.

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