- A Rs 25,000 monthly car EMI totals Rs 15 lakh over five years including interest payments
- The actual car value is around Rs 12 lakh, with Rs 3 lakh paid as interest to the bank
- Cars lose nearly 60% of value in five years, dropping to a resale value of Rs 5.2 lakh
A simple Rs 25,000 car EMI can quietly destroy more than Rs 15 lakh of your future wealth, according to a chartered accountant Nitin Kaushik, who warned Indians against falling for the "small monthly payment" trap used by banks and dealerships.
Kaushik laid out the math in a breakdown that challenges the way many middle class families buy cars.
A buyer paying Rs 25,000 every month for five years shells out a total of Rs 15 lakh by the end of the loan tenure. While the EMI may appear affordable, the actual car purchased is worth only around Rs 12 lakh.
The remaining Rs 3 lakh goes directly toward interest payments to the bank.
But the financial hit does not stop there.
Cars are depreciating assets, and after five years of regular use, the vehicle loses nearly 60% of its value. That Rs 12 lakh car eventually drops to a resale value of just Rs 5.2 lakh.
"So what is the total damage?" Kaushik asked.
According to his calculation, the owner effectively loses around Rs 3 lakh in interest and another Rs 7 lakh through depreciation. That adds up to nearly Rs 10 lakh in wealth erosion over five years.
"Yes, you got five years of driving out of it," he said. "But look at what that same money could have done instead."
Kaushik then compared the cost of the EMI with a basic investment plan.
If the same Rs 25,000 monthly amount were invested into a mutual fund SIP earning an average annual return of 12%, the outcome after five years would be dramatically different.
Instead of ending up with an aging car worth Rs 5.2 lakh, the investor could build a corpus of nearly Rs 20.6 lakh.
The comparison exposes what Kaushik called the "real price" of an easy EMI.
Under the car route, the buyer owns a depreciated machine. Under the investment route, the saver accumulates over Rs 20 lakh in financial assets. The gap between the two choices stands at roughly Rs 15.4 lakh.
Kaushik clarified that he is not telling people to never buy a car. His warning is aimed at buyers who focus only on whether the monthly EMI feels manageable without understanding the long term financial cost attached to it.
