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Old 9th December 2009, 18:51   #1
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Question Are there any Disadvantages of taking Car Loan for small duration ?

Hello Experts/TBhpians,

Are there any disadvantages of taking car loan for small duration, say like 2 yrs or even 1 year ?
I am currently staying with my parents, so dont have that much spending.
Can take off max about 25K for loan EMI per month from my salary.

So is it advisable to finish off the EMI's within 1 year ?
Ideally, I will save half of interest by going for 1 year instead of 2 yeara.
But banks make this difficult by putting more interest (percentage wise) for short duration loan.


Please advise.
Also, I am planning to pay 50% price of car as downpayment.
Which is the best Loan Provider at such high downpayment ?
Is there any sweet spot (Loan Amount and Rate of Interest-wise) which will offer me maximum benefit from any specific Loan Provider.

Thanks for helping me out.

Last edited by cool.aquarian : 9th December 2009 at 18:55.
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Old 10th December 2009, 13:22   #2
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Nope, there certainly isn't any disadvantage to taking a short-term loan.

However, you have to consider the opportunity cost. For example, if you are able to procure financing for 11%, and there are investment opportunities that give you returns of 15%, I'd go for a longer finance plan and use my money instead toward investments.

This is typically why most businessmen opt for car loans, even when they can buy the car on an outright purchase. Rather than locking money into the car, take a cheaper loan and invest liquid into business / investments that give you higher returns.
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Old 15th December 2009, 16:22   #3
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I noted one thing in shot term loans that bank's charges higher % rate of interest in the same. - I fail to understand the reason why?
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Old 15th December 2009, 16:34   #4
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Hope this helps,

Here's my Loan details with SBH
Loan Amount: Rs.3,00,000/-
Tenure: 2 years
Interest: 1st Year-8.5%;2nd Year-10.5%
Processing Fee: Nil
Total interest payable in 2 years: Around Rs.27,000/-
If it were 3 years then I'd be shelling out some 5K more.
Prepayment Options: After 1 yr pre closure and part payment allowed without penalty.

So get the details from diff banks for diff combinations and calculate your interest outgoing. Then you'll be able to analyse the pros and cons.

Expect the interest rate to be high for a 1 yr loan (do banks even give that?). Afterall the banks also need to make profits right?

Last edited by kiku007 : 15th December 2009 at 16:39.
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Old 15th December 2009, 16:34   #5
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if you have the capacity to pay the EMI, there is no harm in taking loans of shorter duration.
however, as a general rule of thumb, the shorter the loan tenure, the higher the likely rates of interest.
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Old 15th December 2009, 16:44   #6
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Quote:
Originally Posted by GTO View Post
However, you have to consider the opportunity cost. For example, if you are able to procure financing for 11%, and there are investment opportunities that give you returns of 15%, I'd go for a longer finance plan and use my money instead toward investments.

This is typically why most businessmen opt for car loans, even when they can buy the car on an outright purchase. Rather than locking money into the car, take a cheaper loan and invest liquid into business / investments that give you higher returns.
Hey GTO,

You have said it all ...+1 to you.
Actually i wanted to write this, then i saw you have already written this

This is one of main reason C+ segment cars are sold mainly on good financing options.
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Old 23rd December 2009, 06:38   #7
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Thanks for advice.
The best offer I have come across is from State Bank.

Point agreed about taking loan at lower rate and investing in higher returns, but such things are difficult to find/do for service class people as it requires lot of dedicated time and effort. So I am more focussed on immediate gain than indirect ones.

One more question.
Why are interest rates of private banks always so high compared to Public Banks?
Who on earth would go for their loans if they planned the loan application well in advance. The only advantage they offer is faster processing of Loan and lesser documentation.

Last edited by cool.aquarian : 23rd December 2009 at 06:52.
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Old 27th February 2010, 19:25   #8
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Default Taking a Car loan vs Paying all in Cash

I am planning to buy a new hatch for 5L on road. I have two options

option One - I can pay full in cash from my saving which is presently earning about 10-15% return per annum (FD+MF+shares).

Option 2 - I can take take a loan for 3L and not disturb the investment, but paying about 10% for interest+ processing fee+ effort to get the loan organised.

Effectively both will work out pretty same in terms of total cost

My question is, is there any advantage of taking a car loan?

One think I can think of is the reducing my risk exposure by taking loan, another one is not losing much liquidity. Especially in hard times cash is KING!

Any comments?
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Old 27th February 2010, 19:31   #9
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Quote:
Originally Posted by hpzone View Post
I am planning to buy a new hatch for 5L on road. I have two options

option One - I can pay full in cash from my saving which is presently earning about 10-15% return per annum (FD+MF+shares).

Option 2 - I can take take a loan for 3L and not disturb the investment, but paying about 10% for interest+ processing fee+ effort to get the loan organised.

Effectively both will work out pretty same in terms of total cost

My question is, is there any advantage of taking a car loan?

One think I can think of is the reducing my risk exposure by taking loan, another one is not losing much liquidity. Especially in hard times cash is KING!

Any comments?
No advantage of taking a loan, only if you want to hide some money
I believe if you have the money, pay cash, much easier and no hassle process
For loan
1. Find a bank
2. Give docs to get approvals
3. Once approvals got, processing, takes about 2 days
4. Payment gets released after 2-3 working days
5. Closure means penalty
6. If you want to sell, get HP cleared etc
In between if the bank agents mess up, delays are possible. can be slightly frustrating, i am sure you are aware of all this but just re-iterating
BTW your investments earn 10-15% GROSS, post tax it amounts to 6-9% only.

Last edited by mkh : 27th February 2010 at 19:32.
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Old 27th February 2010, 21:37   #10
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[quote]
Quote:
Originally Posted by kiku007 View Post
Hope this helps,

Here's my Loan details with SBH
Loan Amount: Rs.3,00,000/-
Tenure: 2 years
Interest: 1st Year-8.5%;2nd Year-10.5%
Processing Fee: Nil
Total interest payable in 2 years: Around Rs.27,000/-
If it were 3 years then I'd be shelling out some 5K more.
Prepayment Options: After 1 yr pre closure and part payment allowed without penalty.
Whats your EMI for the First and second year.

God bless.....
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Old 9th March 2010, 17:55   #11
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I have taken a 3 yr loan with SBI, since their rates are the best for that period. 8,10,10 each, effectively 9.3%. There is a pre-closure penalty if I close within 1.5 years. Otherwise no other bad clauses. I applied for loan on 17th Feb, loan disbursed on 4th March. RACPC staff was extremely courteous and helpful. It just took about 45 mins there to complete the formalities. I would highly recommend SBI.

Quote:
Originally Posted by GTO View Post
Nope, there certainly isn't any disadvantage to taking a short-term loan.

However, you have to consider the opportunity cost. For example, if you are able to procure financing for 11%, and there are investment opportunities that give you returns of 15%, I'd go for a longer finance plan and use my money instead toward investments.

This is typically why most businessmen opt for car loans, even when they can buy the car on an outright purchase. Rather than locking money into the car, take a cheaper loan and invest liquid into business / investments that give you higher returns.
Absolutely. If I can get a loan at an average rate of 9.3%, then why shouldn't I use it? I would rather invest my own money in other options which gives me much better returns than plonking into a fast depreciating asset.

Last edited by Dippy : 9th March 2010 at 19:40. Reason: Back to back posts.
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