Diesel vs Petrol Car – Economics of buying one over the other

This is a question which every car buyer faces and the calculation is a bit cumbersome for some. This is a small guide to do the same. 

The table below shows the difference in EMI payments for an additional loan you take to finance your diesel car. For eg: Assume that Petrol version costs 5 lakhs and Diesel version costs 6.2 lakhs. If you pay the same upfront amount for both cars, you need to finance the additional 1.2 lakhs using car loan. For a 3 year loan, the extra EMI you need to pay is Rs. 3866 while for a 5 year tenure you pay Rs. 2557 extra. 

Assumptions:- Car Loan interest rate has been taken as 10.5% p.a. ( SBI rate)

TABLE  1

Price difference/Loan Tenure	36	48	60
40000	(1,288.82)	(1,015.25)	(852.30)
80000	(2,577.64)	(2,030.50)	(1,704.60)
100000	(3,222.05)	(2,538.13)	(2,130.75)
120000	(3,866.46)	(3,045.76)	(2,556.90)
150000	(4,833.08)	(3,807.19)	(3,196.12)

Now the question you face is whether your fuel savings due to the higher mileage of diesel cars and lower price of diesel offsets the above EMI.

For calculations below, it has been assumed that there is a 5 km/litre difference in mileage i.e. 20 km/l for diesel car and 15 km/l for a petrol car. Calculations would change if mileage is 12 and 17 though the difference is still 5. These convexity effects have been ignored.

Now that diesel price has been deregulated and hence both Petrol and Diesel prices would move in tandem, the difference in price would remain almost constant assuming the states do not change the tax structure on these. The current difference in price is Rs. 11 in Delhi and Rs. 13 in UP. But some states like Punjab have a higher difference around Rs. 18.

The table below shows the Rupee Savings for different usage patterns of cars. If your daily usage is around 50 kms and hence monthly run around 1500 kms, then your savings are Rs. 2490 if price difference is 11 and so on.

TABLE 2

Daily run	Monthly run	11	12	13	14	15	18
20	600	996	1036	1076	1116	1156	1276
30	900	1494	1554	1614	1674	1734	1914
50	1500	2490	2590	2690	2790	2890	3190
80	2400	3984	4144	4304	4464	4624	5104
100	3000	4980	5180	5380	5580	5780	6380
150	4500	7470	7770	8070	8370	8670	9570
200	6000	9960	10360	10760	11160	11560	12760
250	7500	12450	12950	13450	13950	14450	15950
300	9000	14940	15540	16140	16740	17340	19140

You can do 2 kinds of calculations here:-

a)      Conservative scenario:- Take price difference as lowest in the table i.e Rs 11 as all states might converge to that in the future. Also in case this happens, your savings would change

b)      Current scenario:- Take the figure based on difference in prices in your state.

Now using above 2 tables, you can clearly choose which car you want to buy on the basis of economics of fuel savings and additional car cost.

Based on Table 1, if price difference between diesel and petrol version of the car you have shortlisted is 1 lakh, your EMIs difference is Rs. 3222 for 3 years and Rs 2538 for 5 years.

Based on Table 2, take the petrol-diesel price difference in your state and see how much you need to use your car monthly to offset the extra EMI. If price difference is Rs. 12, then   Rs 2590 is saved if your car runs 1500 kms in month. For 3222 Rs, it has to run approx 1900 kms in a month. 

So, if your usage is less than this, then you should prefer the petrol version. Else the diesel version is better.