Quote:
Originally Posted by variozin  This one seem like a baby question, but since I have never had used finance services or took loan for anything so dont have a clear idea.
Q. Is buying a car with full payment is better than taking loan, if the buyer is capable of ? Looking at EMI rates of 10~15% is it advisable to get financed than just pay the full amount from the pocket? |
This is a no-brainer in my opinion. One should almost never buy anything on a loan, except a home, if one can afford it. This opinion is irrespective of current interest rates. These are my reasons.
1) If you paying 10% for a loan & instead investing the same money in something which gives 8% it's obviously stupid.
2) If you paying 10% for a loan & instead investing the same money in something which gives 10% it's again not worth it if the 10% return
on investment is pre-tax.
3) If you are paying 10% for a loan & investing in something giving you
more than 10%, it probably may not be a very safe investment. If it
was a rock solid investment, why would the bank give you a loan? Won't
they rather invest their money in the same investment & make more
money. Maybe today your investment is making 15%, but 6 months down
the line, it may be making only 8% or even go at loss. The current bull
market for the last couple of years has lulled people into a sense that
stock market returns are assured. In the current market even if a
donkey is running a mutual fund. But this may not be true 1 year down
the line, or even 6 months down the line. Don't fool yourself into thinking
that you are smart enough to move your investment into something else
at the same time. Most professional investors aren't smart enough to
do this.
You get good returns on investments only if you take some risk, I am
not advising not to do it. I am just saying you should put your
money investment while taking a car loan at the same time.
Next question is if you can't afford to pay upfront, should you buy a
car on loan.
In my opinion, mostly no.
- If you can't afford a Swift Zxi, see if you can afford a Swift Lxi.
- If you can't afford a Swift Lxi, see if you can afford a Santro.
- See if a Maruti 800 is good enough for you.
- Buy a 2nd hand Swift Vxi.
- You don't need a stero in your car, unless you can afford it.
- You don't need automatic doors & windows, unless you can afford it.
If you can't afford anything, then see if you can travel in buses, trains,
autos for a year & save money to buy the car.
For most people car isn't a neccessity. If it isn't for you, don't
go for a loan.
Home Loans are slightly different beasts, so all this doesn't apply to
home loans.