Petrol, still a viable option???

Fuel prices are soaring sky high and there seems to be very little respite in store for us in the future.

The quality of diesel engines has improved significantly.

The big question that weighs us down when we look for a car for ourselves is whether we should look for a diesel vehicle or a petrol.

Let me just run you through some very interesting facts that may help you make up your mind and be prepared to be surprised by some revelations we will arrive at.
Fasten your seat belts and read on!

Let us for the time being concentrate only on the financial aspect of things alone.
If you compare the prices of comparable models of petrol and diesel you will notice that you have to pay a high mark-up of about Rs. 100,000 for the diesel variant.

Throughout this article we will require a lot of factual data for which we will use average numbers.

Most of the cars buyers today purchase a car with the help of a car loan with the most popular tenure being that of 60 months or 5 years.

So, for all the calculations here, let us assume the tenure as 5 years.

When you opt for a diesel variant, you end up paying at least Rs. 100,000 more as mentioned earlier. This, amounts to an additional loan amount of Rs 100,000 for the tenure of 5 years.

Interest rates for car loans may vary from provider to provider. Let us assume an interest rate of 11%. So, the interest which you pay on Rs 100,000 for 5 years @ 11% amounts to Rs. 55000.

The value of a car depreciates year after year. Let us assume the rate of depreciation to be equal to 20% per year.
Now our difference amount (Rs 100,000) will also depreciate at 20% over the period of 5 years by Rs 32768.

Assuming we invest this difference amount for the tenure of 5 years, an interest of 6% per year can be earned without too much sweat. The interest that Rs. 100,000 will earn if invested @ 6% will be 33822.56.

Now, with the interest paid, earned and depreciation over the tenure of 5 years as calculated, the value of the additional amount of Rs. 100,000 grows to Rs. 221,590.56!
This is the actual difference that you pay for a car “cheaper” to run.

Now, the only way this additional expense can make sense is if the savings that it results in are substantially greater than this amount.

Let us assume the price of petrol and diesel as Rs. 55 and Rs. 38 respectively and the mileage for the two engines as 11kms per liter and 15kms per liter respectively. (These are average figures, much lesser than the company claims).

Going by these numbers, to run a petrol car for a kilometer you pay Rs. 5 and a diesel costs you Rs. 2.53.

Hence if you run a diesel car, you save Rs. 2.47 per kilometer of running cost.

In order to save as much money as the difference that you pay, which we have earlier seen is equal to Rs. 221,590.56, we have to drive the car for at least 89834.01kms over 5 years.
(Difference/Savings-per-km = = 221,590.56 / 2.47)

To drive 89834.01kms over 5 years, one should drive at least 1497.23kms a month, which amounts to 49.91kms a day!

So, only if you drive a whooping 49.91kms a day on a diesel car will you save as much money as the additional cost.
If your daily mileage is anything less that this, you are in a loss on the balance sheet and have to drive much much more to save substantially.

This is only the balance sheet cost benefit analysis for you. Let us not forget the obvious advantages that a petrol engine has like better refinement, lower cost of maintenance, better life, better re-sale cost and pick up!

As a tendency we tend to notice only those expenses for which we pay by cash regularly. An additional expense like this one, which deceives us into the belief that we are actually saving the money should be re-looked at.

Hope this was an eye opener!