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Old 31st August 2016, 14:08   #301
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Opportunity cost, IMO, only comes into play if you have options of investing that amount somewhere where you might be getting high returns. Such a scenario is usually not available to most people.
Keeping 6L in a FD at 7.75% and paying an EMI at 10% is counter-productive in my opinion.
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Old 31st August 2016, 14:30   #302
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Opportunity cost, IMO, only comes into play if you have options of investing that amount somewhere where you might be getting high returns. Such a scenario is usually not available to most people.
Keeping 6L in a FD at 7.75% and paying an EMI at 10% is counter-productive in my opinion.
Correct. Which is why well chosen MFs and such are an option. The other thing to note is that if you have a huge cash outflow - and then suddenly need the cash for some sudden and unavoidable expense such as an illness, traditional gift of gold at a religious ceremony, child birth etc .. it is always essential to keep an emergency reserve of cash in liquid or easily liquidatable form.
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Old 18th July 2017, 21:53   #303
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It doesn't really matter what car at what salary. If you have the cash to buy, you can buy any car. Coming to finance and EMI, one point to consider: On a seven year loan, after paying 4 years, your car is probably worth just a little more than the outstanding loan amount!
Betting on future income for a product that depreciates fast seems a financial gamble in my opinion. I know, this is against general wisdom as auto finance penetration is at 74% in 2015-16 and we have very positive outlook about our incomes.
Oh, by the way, my car was paid in cash 100% at the time of purchase though it is just humble alto.
Just my two cents
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Old 19th July 2017, 09:51   #304
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Originally Posted by rdst_1 View Post
Opportunity cost, IMO, only comes into play if you have options of investing that amount somewhere where you might be getting high returns. Such a scenario is usually not available to most people.
Keeping 6L in a FD at 7.75% and paying an EMI at 10% is counter-productive in my opinion.
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Correct. Which is why well chosen MFs and such are an option. The other thing to note is that if you have a huge cash outflow - and then suddenly need the cash for some sudden and unavoidable expense such as an illness, traditional gift of gold at a religious ceremony, child birth etc .. it is always essential to keep an emergency reserve of cash in liquid or easily liquidatable form.
There is another option - Overdraft loan. Unfortunately, for cars only SBI has this. But this way, you keep liquidity and not pay interest
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Old 19th July 2017, 14:50   #305
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There is another option - Overdraft loan. Unfortunately, for cars only SBI has this. But this way, you keep liquidity and not pay interest
Are you talking about normal OD loan or OD against FD ?
Normal OD loans have a much higher rate of interest and are akin to personal loans although you have the benefit of taking out money as and when required.
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Old 19th July 2017, 15:44   #306
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Are you talking about normal OD loan or OD against FD ?
Normal OD loans have a much higher rate of interest and are akin to personal loans although you have the benefit of taking out money as and when required.
Normal OD, not against FD. I was charged 9.75% inmterest for this type of 'normal OD' / maxgain. So the interest though higher than normal loan, is not very high. So, you have to judge the pros / cons and the payback capacity before going in for it. For me liquidity was important. Additionally, i know that I will get a higher salary in the future which I am offsetting against this loan. You essentially pay interest only on the outstanding amount. So, any amount that you pay against the principal will reduce your interest liability for that duration. If you have to withdraw money from the OD account, you start building up interest on the withdrawn amount only from that date and not from the start.
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Old 19th July 2017, 22:06   #307
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Normal OD, not against FD. I was charged 9.75% inmterest for this type of 'normal OD' / maxgain. So the interest though higher than normal loan, is not very high. So, you have to judge the pros / cons and the payback capacity before going in for it. For me liquidity was important. Additionally, i know that I will get a higher salary in the future which I am offsetting against this loan. You essentially pay interest only on the outstanding amount. So, any amount that you pay against the principal will reduce your interest liability for that duration. If you have to withdraw money from the OD account, you start building up interest on the withdrawn amount only from that date and not from the start.
That is quite a good rate you have been offered.
As a businessman, we are usually offered higher rates.
If you don't mind me asking, how much OD limit have you been granted.
For me, OD against FD works for now as interest rate is just 1% over the FD rate.
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Old 20th July 2017, 09:05   #308
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Are you talking about normal OD loan or OD against FD ?
Normal OD loans have a much higher rate of interest and are akin to personal loans although you have the benefit of taking out money as and when required.
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Originally Posted by govigov View Post
Normal OD, not against FD. I was charged 9.75% interest for this type of 'normal OD' / maxgain. So the interest though higher than normal loan, is not very high.
I was actually charged the standard car loan rate of 9.25% and that is because I did not have any credit score. I was told it would go down to 8.6-8.8 if I had a decent credit score. And the OD limit is on the available balance which is basically the loan amount and it goes down by the principal component every month.

Anyway. OD if for people who have majority or all of the cash available (or have a high enough disposable income so they can put down the majority of the loan amount in the next few months). This way, you don't pay interest and you have liquidity.
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