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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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Default Re: What Car @ What Salary ?

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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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Default Re: What Car @ What Salary ?

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Originally Posted by rdst_1 View Post
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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Old 6th May 2018, 16:50   #309
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Well, this thread has always fascinated me. It's a never ending debate on should you buy a new car as soon as you are able to afford it or hold on to your rides for 7-10 years and save for rainy day.
Last evening I got into this discussion with one of my close friend on replacing his car. This guy makes close 1.25Cr as pre tax income and currently drives a 6 year old Safari Storme and his wife drives a 7 year old i10.
With this kind of income (& existing assets of 4-5 Crs), a luxury car is always in one's mind. So the discussion went on like this -

Me: Hey, it's high time to come out of pre-historic tata gem and get something nice from Ze Germans

Him: I've already been a BMW fanboy from childhood but I develop cold feet thinking about atrocious Bangalore traffic & high maintenance costs.

His Wife: Why do you want to put your hard earned money on these broken, overcrowded streets and let every moronic biker give you a heart attack. Imagine the time that we can spend in Europe & Australia with this half khokha (50L). Moreover, Safari is so comfortable, has so much space and you can drive it without any fear of anyone scraping your car.

Me: You guys are already nearing mid 40s, it's the right time to enjoy a fine car. At the end of the day, with you settled down in Bangalore, you are not going to get Autobans in Indian in your lifetime. So better enjoy the car that you dream of, on these Bangalore roads.

Him: I know, it's just one life but I remain in dilemma. I want to take the plunge & perhaps, I have the moolah as well, but I am not sure.

The dilemma continued and there was no conclusion. I thought, it's worth bringing it up here. What are the thoughts on this pretty predicament
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Old 6th May 2018, 17:00   #310
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The dilemma continued and there was no conclusion. I thought, it's worth bringing it up here. What are the thoughts on this pretty predicament
This is not really a dilemma. They have alternate use of the resources they would otherwise spend on luxury cars. Come to think of it, it is a pretty good idea to invest 2-3 crore abroad in a rental property, visit there for 2 months a year. Keep any luxury car there at half the cost here or rent any car you want. All the while enjoying the excellent roads and fine weather.
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Old 6th May 2018, 19:16   #311
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This is not really a dilemma. They have alternate use of the resources they would otherwise spend on luxury cars. Come to think of it, it is a pretty good idea to invest 2-3 crore abroad in a rental property, visit there for 2 months a year. Keep any luxury car there at half the cost here or rent any car you want. All the while enjoying the excellent roads and fine weather.

But why do one need to buy another house ? Specially if the person is going to use only 16% out of whole year. I feel the best way is to not stick with additional owned house, rather use the beautiful opportunity of renting out via Airbnb or even hotels around the world (More optionality you see) and that too within the amount that one can earn via alternate productive usage of the purchase cost.

As a businessman or an Investor , we crave and search for asset light business model to invest, why not implement asset light model in our own life and enjoy the "Leverage" opportunity that the world offers to us, which was not possible few years back.

Last edited by vahss_11 : 6th May 2018 at 19:25. Reason: typo
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Old 6th May 2018, 20:35   #312
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Originally Posted by vahss_11

But why do one need to buy another house ? Specially if the person is going to use only 16% out of whole year. I feel the best way is to not stick with additional owned house, rather use the beautiful opportunity of renting out via Airbnb or even hotels around the world (More optionality you see) and that too within the amount that one can earn via alternate productive usage of the purchase cost.

As a businessman or an Investor , we crave and search for asset light business model to invest, why not implement asset light model in our own life and enjoy the "Leverage" opportunity that the world offers to us, which was not possible few years back.
Dollar assets dude. 😀. Look at the rental yields abroad. Rent out the property and use the income for foreign trips all over the world.
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Old 6th May 2018, 23:52   #313
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I observe two rules of thumb. A cars OTR cost should not exceed 6 months salary , net of tax. And you should pay it in 3 years. I.e. keep monthly emi under 20% of your net income.
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Old 7th May 2018, 08:33   #314
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Dollar assets dude. 😀. Look at the rental yields abroad. Rent out the property and use the income for foreign trips all over the world.

Well, we are moving away from 'car buying' point to 'house buying'😃

My friend already has few houses in the city and doesn't want to delve into real estate further.
The question was - should they take a plunge and spend about 50L, given their financial state & traffic situation in Bangalore.
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Old 7th May 2018, 08:52   #315
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Default Re: What Car @ What Salary ?

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My friend already has few houses in the city and doesn't want to delve into real estate further.
The question was - should they take a plunge and spend about 50L, given their financial state & traffic situation in Bangalore.
NO.

Instead get a isuzu v max and explore the hell out of our country. Keep the other cars for city errands. The headache and heart ache an expensive car in india brings is just too much.

May i also recommend the gentleman looks at a nice motorcycle, if he is into that sort of thing?
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