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Old 4th October 2011, 12:26   #16
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

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Originally Posted by keyur View Post
In the first year, only about 5 or 6 k was going towards the principal, and the rest towards interest.
This is incorrect and thats why we need correct calculations to compare.

E.g. for a loan of 3.5 Lakh @ 13% for 5 years, amount of principle paid in first year is slightly more than 50,000.

If you an give me loan amount, ROI and tenure I will post amortization schedule for the loan.
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Old 4th October 2011, 12:52   #17
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

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Originally Posted by NetfreakBombay View Post
E.g. for a loan of 3.5 Lakh @ 13% for 5 years, amount of principle paid in first year is slightly more than 50,000.

If you an give me loan amount, ROI and tenure I will post amortization schedule for the loan.
The amortization schedule is specific to every bank. How do you plan to generalize it.

Also, with the increasing trend in foreclosures and increasing rates of interest, the amortization schedules are varying even more, with many banks trying to do the interest recovery as early as possible.

The data that I got from my buddy about the loan given to him had nearly the first whole EMI going to interest (save a couple of 100 bucks). (This was some quick car loan scheme with XYZ bank)
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Old 4th October 2011, 13:06   #18
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

So, this is basically the same as a "Home saver" as they call it in SCB.

I used this kind of loan for my site loan from SCB.

The point that is not clear in your post is that usually the interest rate on such loans is slightly higher than normal car loan.

Normally, the bank/agents tell you that if your have a minimum of Rs.X minimum balance in your OD account, it will make up for the difference in the interest rate when compared with the normal loan.

I really liked the Home Saver loan with SCB.

Another way to look at it is, having a SB account which gives you a very high interest rate on daily balance! with SB accounts, I get 4-5% interest on avg. quarterly balance, where as with Home Saver loan it was 12-14% (depending on interest rate) on daily balance!

So, if I have Rs.x extra in the OD account for say 20 days, I get interest on that amount for 20 days which is great!

Question: Is the interest on daily balance with SBI Advantage car loan?
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Old 4th October 2011, 13:08   #19
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

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Originally Posted by keyur View Post
The amortization schedule is specific to every bank. How do you plan to generalize it.
No, amortization schedule is a standard. Bank can not tweak that. In India, this is governed by RBI.

This sheet (from RBI) will give you schedule for any bank in India:

http://rbidocs.rbi.org.in/rdocs/Cont.../HLC191109.xls

FAQ from RBI:

Reserve Bank of India
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Old 4th October 2011, 13:22   #20
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

@keyur : This is a commendable effort, and really hats off to your explaining style and care for the community.

This being said, I have some reservations against this. Firstly the liquidity point. You say that if we deposit full cash on Day 1, then we get to have the liquidity option open for the tenure period. But when you take out some money out of the account, you are charged at the interest rate for car loan. This would be fine if your intended purpose was taking a personal loan, but if that loan could have gotten for lesser interest otherwise, this is an unnecessary addition of cost.

Second comes the costs and hessles of hypothication of documents.

Third, if you are to take home loan or any other loan, this loan would be taken into account, because it is still under way. So your eligilibility there is reduced a bit.

I think loan products are created for one purpose alone, to help banks make maximum money. Trying to turn them into customer's favour is like finding arbitrage, very short lived opportunity that can burn your fingers as well. Better to keep that cashflow statement simple That's what I feel atleast.

As someone said above, the other hidden costs of processing charge, prepayment charge, plus random erratic things you can't control that take up your time, it may be better to pay up the money if you have it in your account in full.
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Old 4th October 2011, 14:03   #21
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

Quote:
Originally Posted by vasanthn21 View Post

The point that is not clear in your post is that usually the interest rate on such loans is slightly higher than normal car loan.


Another way to look at it is, having a SB account which gives you a very high interest rate on daily balance! with SB accounts, I get 4-5% interest on avg. quarterly balance, where as with Home Saver loan it was 12-14% (depending on interest rate) on daily balance!

So, if I have Rs.x extra in the OD account for say 20 days, I get interest on that amount for 20 days which is great!

Question: Is the interest on daily balance with SBI Advantage car loan?
The interest rate is higher by about 1 point above the normal for SBI (which is normally lower than others). But once you manage the topups, it does not matter.

I don't think that you earn interest for the money above the loan amount in the SBI loan (if that would be the case, I should not be removing the extra amount of the EMI after the topup - need to check)

SBI has daily reducing balance.

Quote:
Originally Posted by ani_meher View Post

This being said, I have some reservations against this. Firstly the liquidity point. You say that if we deposit full cash on Day 1, then we get to have the liquidity option open for the tenure period. But when you take out some money out of the account, you are charged at the interest rate for car loan. This would be fine if your intended purpose was taking a personal loan, but if that loan could have gotten for lesser interest otherwise, this is an unnecessary addition of cost.
The ideal situation with this loan is to get 0% interest - which is attained by doing the top-up. No loan can be cheaper than that unless someone pays you for taking a loan .
The personal loans are normally at 14-18% interest rate (at a time when home loans are between 8-12%), so this would be anyways cheaper than a personal loan - for that matter, any regular loan would normally be cheaper than a personal loan.

Quote:
Originally Posted by ani_meher View Post

Second comes the costs and hessles of hypothication of documents.
No pain, no gain!
Well, these will be done no matter what loan you take anyways! And if it's the hassles you are bothered about, you can pay a 1000 bucks to an agent who will gladly do this all for you.


Quote:
Originally Posted by ani_meher View Post
Third, if you are to take home loan or any other loan, this loan would be taken into account, because it is still under way. So your eligilibility there is reduced a bit.
Wrong! Along with the loan, your current assets are also checked. So if you have done the top up, your liability is zero, and you will be eligible for the maximum amount ( I just did that!)
On the other hand, if you take a normal loan, the eligibility will be reduced even more.

Quote:
Originally Posted by ani_meher View Post
I think loan products are created for one purpose alone, to help banks make maximum money. Trying to turn them into customer's favour is like finding arbitrage
That's why this thread is called the Smart Loan - take the correct steps and you let the bank earn less! As per my calculations, I am paying interest at the rate of 0.27% per annum for 5 years!!

Quote:
Originally Posted by ani_meher View Post
As someone said above, the other hidden costs of processing charge, prepayment charge, plus random erratic things you can't control that take up your time, it may be better to pay up the money if you have it in your account in full.
Processing charge : Not hidden - about Rs.4000 in total.
Prepayment charge : OD account, so prepayment as such does not apply unless you try to close the account. Topup is as simple as a normal deposit.
Random erratic things : Better handled if you have cash in-hand (as against the entire bulk of money paid to the car dealer) - random erratic things still remain equally random and erratic irrespective of whether you have taken a loan or not.
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Old 4th October 2011, 14:09   #22
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

Quote:
Originally Posted by NetfreakBombay View Post
No, amortization schedule is a standard. Bank can not tweak that. In India, this is governed by RBI.

This sheet (from RBI) will give you schedule for any bank in India:

http://rbidocs.rbi.org.in/rdocs/Cont.../HLC191109.xls

FAQ from RBI:

Reserve Bank of India
Thanks for this! Will keep this handy too!
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Old 4th October 2011, 14:10   #23
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

Quote:
Originally Posted by keyur View Post
The interest rate is higher by about 1 point above the normal for SBI (which is normally lower than others). But once you manage the topups, it does not matter.

I don't think that you earn interest for the money above the loan amount in the SBI loan (if that would be the case, I should not be removing the extra amount of the EMI after the topup - need to check)
I was told by the bank personnel that if the balance in my home saver account is more than the principal, then (1) The whole monthly EMI will go towards the prinicpal reduction that month + (2) I would be earning some interest on the excess amount, for which I should pay tax! Alas, I never had money in the account in excess of the principal outstanding.

Quote:
Originally Posted by keyur View Post
SBI has daily reducing balance.
That's good.


Quote:
Originally Posted by keyur View Post
The ideal situation with this loan is to get 0% interest - which is attained by doing the top-up. No loan can be cheaper than that unless someone pays you for taking a loan .
The personal loans are normally at 14-18% interest rate (at a time when home loans are between 8-12%), so this would be anyways cheaper than a personal loan - for that matter, any regular loan would normally be cheaper than a personal loan.


No pain, no gain!
Well, these will be done no matter what loan you take anyways! And if it's the hassles you are bothered about, you can pay a 1000 bucks to an agent who will gladly do this all for you.



Wrong! Along with the loan, your current assets are also checked. So if you have done the top up, your liability is zero, and you will be eligible for the maximum amount ( I just did that!)
On the other hand, if you take a normal loan, the eligibility will be reduced even more.


That's why this thread is called the Smart Loan - take the correct steps and you let the bank earn less! As per my calculations, I am paying interest at the rate of 0.27% per annum for 5 years!!


Processing charge : Not hidden - about Rs.4000 in total.
Prepayment charge : OD account, so prepayment as such does not apply unless you try to close the account. Topup is as simple as a normal deposit.
Random erratic things : Better handled if you have cash in-hand (as against the entire bulk of money paid to the car dealer) - random erratic things still remain equally random and erratic irrespective of whether you have taken a loan or not.
The biggest issue that I have faced is that the account statement/amortization sheet does not reflect the calculations very clearly. I had to maintain a separate excel where I updated every month to determine the amount of money saved on interest component every month.
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Old 4th October 2011, 14:12   #24
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

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Originally Posted by ghodlur View Post
@keyur,

Agreed to your points regarding the adv of taking loan, but I was referring to @Abes post when one takes a loan and deposits the loan amount the same day or say within a week in the OD account. What benefit does this have?

The benefits of OD account can be realized if the loan is taken for atleast an year or more when you dont have the cash but are sure the flow will begin at a later date.
I was asking hypothetically, just to know whether i would have to pay the EMI's if the entire loan amount is already deposited.

But, as Mr. Keyur have explained, if i have only 7 lacs in hand to spare & i want to buy a 7 lac car, i can deposit the entire 7 lacs in that loan account, knowing that i can withdraw any amount out of it if ever i require it, and have an interest free loan! And I dont have to worry about the EMI at all!!

Also, I dont have to worry about the tax guys coming after me, as the vehicle has been purchased on a loan!!
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Old 4th October 2011, 14:13   #25
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

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Originally Posted by keyur View Post
The ideal situation with this loan is to get 0% interest - which is attained by doing the top-up. No loan can be cheaper than that unless someone pays you for taking a loan .
...

That's why this thread is called the Smart Loan - take the correct steps and you let the bank earn less! As per my calculations, I am paying interest at the rate of 0.27% per annum for 5 years!!
The benefit of liquidity as per the post is that you can have upto 5L Rs amount anytime in next 5 years at a short notice in case of this loan. Whereas if you pay upfront, you won't have this flexibility and will need some time to meet the liquidity requirement.

In other words, can it be said that you are paying 0.27% to bank for next 5
years as an assurance of getting a loan upto 5L Rs at 12% p.a. at short notice?

Quote:
Originally Posted by keyur View Post
Along with the loan, your current assets are also checked. So if you have done the top up, your liability is zero, and you will be eligible for the maximum amount ( I just did that!)
On the other hand, if you take a normal loan, the eligibility will be reduced even more.
Thanks for correcting. If one can do the top up so that the liability is zero, then one can pay up the full amount without any loan as well. In both the cases, the normal loan eligibility won't be affected.
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Old 4th October 2011, 14:22   #26
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

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Originally Posted by keyur View Post
That's why this thread is called the Smart Loan - take the correct steps and you let the bank earn less! As per my calculations, I am paying interest at the rate of 0.27% per annum for 5 years!!
This part (highlighted in bold) is the the thing I am not sure about. Can you post the calculations based on which you arrived at this rate of 0.27%.
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Old 4th October 2011, 14:22   #27
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

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Originally Posted by ani_meher View Post
In other words, can it be said that you are paying 0.27% to bank for next 5 years as an assurance of getting a loan upto 5L Rs at 12% p.a. at short notice?
This sounds more like it, but it also has added benefits of having a loan on hand whenever we feel like borrowing or repaying

Quote:
Originally Posted by keyur View Post
This is NOT for you if :
  • You have other ongoing loans and you may not be eligible for the loan.
  • You plan on paying the EMI and continue the loan for the full or majority tenure.
So to avail of this do I have to be totally debt free or is it ok if I have a home loan? My other eligibility criteria should be in order.
How and when will this loan finally be repaid? Is it at lender discretion or customer's?

@keyur, it took me 2 weeks to convince myself that I dont need to book the XUV500. Now you are telling me I can. What am I supposed to do?
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Old 4th October 2011, 15:18   #28
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

Quote:
Originally Posted by ani_meher View Post
In other words, can it be said that you are paying 0.27% to bank for next 5 years as an assurance of getting a loan upto 5L Rs at 12% p.a. at short notice?
Better, I am getting a substantial loan for peanuts, and at the same time am assured that I have that amount of money at my disposal - at zero notice!
I am paying the 0.27% (or rather have already paid it) so that
the bank pays for my car for now
i still have all the money at my disposal for 5 years
i get a very very very low interest rate

(and tomorrow, if I have to make a quick getaway, I have easy cash )



Quote:
Originally Posted by NetfreakBombay View Post
This part (highlighted in bold) is the the thing I am not sure about. Can you post the calculations based on which you arrived at this rate of 0.27%.
I have taken a loan and topped it up in 3 months.

Here is an illustration.

Loan amount : 1000000
Tenure : 5 years
ROI : 15%
EMI : ~24000

Total payable interest (SI) = 750000 or about 430000 (RI)

Now, with the OD, if I top up in 3 months, the total interest paid would be around 35000. As long as I do not withdraw any money, the total amount of interest ever paid would be 35000. Hence, by reverse SI calculations, over 5 years for 1000000, the interest rate become 0.7%.


I did my topups faster and more often, hence got 0.27% interest rate! (Would not like to share my specific details here)

First day topup = 0% interest rate
Topup by 3 months = 0.27 % interest rate is definitely feasible

Quote:
Originally Posted by selfdrive View Post
So to avail of this do I have to be totally debt free or is it ok if I have a home loan? My other eligibility criteria should be in order.
You can definitely have a home loan (I had one too). Your net assets and your take home - EMI will define your eligibility.

Quote:
Originally Posted by selfdrive View Post
How and when will this loan finally be repaid? Is it at lender discretion or customer's?
The loan is repaid when either of the following happens first :

1. Tenure expires
2. Customer forecloses the loan (Topup in the OD is not foreclosure - you have to submit a letter to the bank asking to foreclose the loan - in this case, you may have to pay extra amount depending on how long are you into the tenure)

Quote:
Originally Posted by selfdrive View Post
@keyur, it took me 2 weeks to convince myself that I dont need to book the XUV500. Now you are telling me I can. What am I supposed to do?
Buy an Optra . Just kidding - I too had started off on the Safari, drifted to the Cruze, then bought the Optra!
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Old 4th October 2011, 15:38   #29
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

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Better, I am getting a substantial loan for peanuts, and at the same time am assured that I have that amount of money at my disposal - at zero notice!

You are no more taking the loan as you have all the money to pay upfront , you are effectively paying a 'booking amount' so to say to get quick loan in future.

I am paying the 0.27% (or rather have already paid it) so that
the bank pays for my car for now = you are blocking your 5L now

i still have all the money at my disposal for 5 years = a possibility of a fastest loan possible at 12% p.a. for a max of 5L

i get a very very very low interest rate = you pay 0.27% to bank for this assurance for next 5 years

(and tomorrow, if I have to make a quick getaway, I have easy cash = which you can have if you apply for a loan that time, but it will be delayed plus interest rate will be depending on the loan.
I am not critising you personally at all, so please don't take this discussion into that light. I am only talking calculation wise.

As per the post, the total cost for insurance of 5L loan at a very short notice in next 5 years for 12% p.a.
= 4000 processing charge + 35000 as calculated in your post ~ Rs.40,000 today, as these charges will be paid by you today and in next 3 months.

Is paying 40,000 today for assurance of getting a quick 5L loan worth? For me, it is not. Because 40,000 invested today will yield 4,000 before tax in one year, and become 64,400 before tax at the end of 5 years. Even if I should require a loan of 5L in next 5 years no matter how fast, I am sure a quick payment of 40,000 (8% of the loan amount) will ensure me its fast approval. Only randomness is the interest rate part. Personally I never take personal loan which is charged at higher rates. If someone needs it, then he needs to evaluate the options. For others, I doubt this is much fruitful.

This 40,000 is more like a call option in market, where you can get a 5L Rs loan any time in next 5 years for 12% p.a. If you pay up those 5L rather than taking loan, you might as well buy a TVS scooter or some nice ICE for your new car! Should the need arise of those 5L loan in next 5 years, you apply for loan at that time.
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Old 4th October 2011, 15:49   #30
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Default Re: The Cheap Loan or the Smart Loan - SBI Advantage Car Loan

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Originally Posted by keyur View Post
Buy an Optra. Just kidding - I too had started off on the Safari, drifted to the Cruze, then bought the Optra!
Do you really want me to start off on that one?! By the way, havent received a response for TDs from either Mahindra or Chevy for both these vehicles though I registered around 2 weeks ago.

Quote:
Originally Posted by ani_meher View Post
Should the need arise of those 5L loan in next 5 years, you apply for loan at that time.
@ani_meher; I guess this option mentioned by keyur is more applicable for situation where the entire 5L may not be available immediately, but more where people can save up and reach a substantial amount. If not 5L, at least a part of it, which instead of investing elsewhere can be used for reducing our own interest burden.
I am not up for interest calculations this afternoon, but I hope the opportunity costs of investing that part is also included in this cost benefit analysis. i.e. what would have been my interest gain if I had invested that amount elsewhere (stocks, commodity, bullion, mattress) instead of the OD account.
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