A prominent financial expert is challenging a widespread consumer habit in India: buying cars based primarily on the comfort of monthly EMIs. Sunil Gurjar, founder of Alphamojo and Wealthmojo, contends that this approach leads many, especially young earners, to make significant financial missteps, jeopardizing their long-term wealth.
The Illusion of Affordability
Gurjar highlights what he terms the “EMI illusion,” where a seemingly manageable monthly payment, such as ₹8,000, can obscure a much larger loan commitment—potentially ₹8 lakh or more. For individuals earning around ₹30,000 a month, this can mean dedicating over two years' income to a single vehicle. This pattern, prevalent across urban India, reflects a societal trend where lifestyle aspirations often outpace actual income growth, fueled by easy financing and aggressive marketing.
A Prudent Rule for Car Buying
To counteract this trend, Gurjar proposes a simple guideline: the cost of a car should ideally not exceed 12 to 15 months of one's salary. By this logic, someone earning ₹50,000 monthly should cap their car budget at ₹7-8 lakh, while an individual making ₹1 lakh a month could consider a vehicle in the ₹12-15 lakh range. This rule encourages financial discipline over aspirational spending.
The True Cost of Depreciation and Missed Opportunities
Unlike appreciating assets like property or equity, cars are inherently depreciating. Industry data suggests a new car can lose 15-20% of its value immediately after purchase and over half its value within five years. Overspending on a vehicle, therefore, represents a substantial financial drain, not just in initial outlay but also in lost investment potential. Funds tied up in high EMIs could otherwise be channeled into systematic investment plans (SIPs), emergency savings, or educational funds, benefiting from the power of compounding over time.
Beyond Social Pressure
Gurjar's analysis also touches upon the social dynamics influencing car purchases. The pressure to “keep up” with peers, who showcase new SUVs or other acquisitions, often drives financial decisions. However, as Gurjar points out, these external pressures rarely offer support when loan repayments become a burden. He emphasizes that while the car itself may be forgotten in a decade, the financial impact of consistent investment versus overspending will be profoundly felt.
As credit becomes more accessible to India’s expanding middle class, Gurjar’s insights serve as a timely reminder to view car ownership not merely as a status symbol, but as a critical financial decision requiring careful consideration against long-term financial goals.