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Old 26th April 2010, 14:32   #91
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Never buy a depreciating "asset" (really a liability) on loan.
Buy good 2nd hand where the 1st owner has taken all the depreciation hit.
You will get good hatchbacks and sedans under 2 Ls - talking for a middle class family.

Thumb rule - you should have enough bank balance to live on it without having a job for almost 3 years.
Any cash more than that - you enjoy/invest, wisely.
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Old 26th April 2010, 16:13   #92
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Well, after reading this thread. I think its time for me to get a job with higher salary

Coz i already have a car which is 1.5 times my CTC and EMI is 50% of my salary!!!!
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Old 26th April 2010, 17:08   #93
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I find the sweeping statements of not buying on loan too broad a generalisation.

There are certain people who may be independent consultants who file a P&L as taxes, there can be tax advantages to be gained by "expensing out" interest payments on a loan.

It all depends on how you want to manage your balance sheet and wealth growth.

In the above scenario, the money paid towards interest reduces tax liability for the individual and the funds borrowed can be deployed towards higher risk investments.

Again, all depends on individual risk appetite and mid / long term money management strategy.
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Old 26th April 2010, 17:11   #94
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I think for a lot of us here on Team-BHP, car buying is more of an emotional thing and being enthusiasts the equations of going overboard in our car buying decisions could be a regular occurrence. So IMHO people here on this forum may have over leveraged themselves to get their dream set of wheels.
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Old 26th April 2010, 17:23   #95
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Originally Posted by subscrive View Post
Never buy a depreciating "asset" (really a liability) on loan.
Buy good 2nd hand where the 1st owner has taken all the depreciation hit.
Cars depreciate more during initial years then later, but they keep depreciating whether it is a first hand or second hand car.
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Old 26th April 2010, 18:13   #96
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I think its a matter of your priorities. After working out your net cash in hand (after deducting other 'fixed'expenses/EMIs etc), what do you want to do with the money you have. i.e If holidays abroad with family rank high in the ladder, then you would need to save accordingly and allocate less to your car budget.

Here's where a fresh used car becomes a good solution, you can buy a fiesta for the price of a new Swift Vxi etc etc if you really need a car with a boot.

Once you prioritise it should all fall into place and make it clearer on how much you should spend
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Old 26th April 2010, 18:32   #97
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If, going by the amortization schedule of a car loan, the principal outstanding + foreclosure charges (the liability) goes quickly below the potential resale value of the car after that duration - then is it a big risk to take a loan?

This would work better for cars with excellent resale value.
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Old 26th April 2010, 18:37   #98
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Car=Outright purchase for me. No EMIs for a car. I waited and waited till I could purchase a decent car outright. This culminted in the Polo.
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Old 26th April 2010, 20:54   #99
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i personally would consider paying EMI's if it would help me to save any Taxes on it other than that its just we paying interest for no reasons! IMO its better to buy a car outright coz you have the money for it, other than that loan it (only) if its at 0% interest :-)
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Old 26th April 2010, 23:02   #100
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Originally Posted by mac187 View Post
Well, after reading this thread. I think its time for me to get a job with higher salary

Coz i already have a car which is 1.5 times my CTC and EMI is 50% of my salary!!!!

Hey same here as well. Hoping my CTC and bank balance to improve so that I can afford what I want. Till then its saving time. I would not mind waiting for a few months, may be a year. Anyway till then a 2nd hand hand car is what I have in mind.
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Old 26th April 2010, 23:04   #101
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whats your opinion on what a businessman should do?

3 X your monthly profit? or some kind of cashflow or depreciation based calculation?
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Old 27th April 2010, 07:38   #102
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For the Business-man, this calculation is bit different. You can call this out as operational asset, and depreciate it according to the tax law.

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Old 27th April 2010, 12:22   #103
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Didn't really have the time or energy to go through all the posts. My apologies if I repeat some stuff.

A car is ALWAYS a waste of money.

Barring vintage cars, a car is always a liability, never an asset. Don't kid yourself into thinking that you have this asset that you paid 5 lakhs for. The moment you drive your new car from the dealer, the value of this so called asset drops.

As a kid I used to go around JVPD, Seven Bungalows, etc. in Bombay and I noticed people who lived in bungalows worth crores of rupees but who drove around in old Fiats and Ambassadors. I never could understand why they did not buy a better car, but now I do.

The fact is that when you are in the formative years of your career (say the first ten years or so of your career), the money you earn doesn't really enable you to purchase a house or an expensive flat. Taking a 20 year loan and paying a big chunk off your paycheck every month is a deterrent to most people. Most guys get scared just thinking about it and the recent recession hasn't helped.

So what do most people do, say if you make 10 lakhs a year? You buy a 10 lakh or a 15 lakh, maybe even a 20 lakh car. Easy to do. All you have to do is go to the dealer, be treated as a king, sign on a few forms and presto you have a car! Compare that with the drudgery of choosing a flat, house or site, dealing with builders and brokers, cash payments, registration, etc. and not many people would willingly buy a property.

So a car gives you instant gratification and you "think" you have an asset, except that its not.

I am amused to see a guy I know who rents a flat in the apartment building nearby who has put his entire life savings on a BMW 520d. At least I hope he bought it to realize his dream and not because he hopes that it would one day turn into an asset.

A car is rarely a status symbol.

Don't kid yourself into thinking that just because you bought yourself a Honda City that you have more status than someone with a Swift, or even that people will respect you for your car.

Unless you have the German triumvirate (Mercedes, BMW, Audi) or a Porsche or a Rolls, your car isn't really a status symbol.

And oh yeah, unlike the ads your boss won't really remember what car you drive or give you a raise depending on what car you drive.

Never pay full cash down

My mantra: Treat the car as a monthly expense. Buy a good car, the best you can afford with all the safety features. My only criteria for affordability is whether you can pay 3-6 months of EMIs if you lose your job.

Always buy a car on loan. Why? Because that way you spread out the depreciation over a longer period of time. A car generally depreciates faster in the first few years.

So say you buy a 5 lakh car, why would you put 5 lakhs cash down when you know if you sell it in a week you will probably get 4.5 lakhs for it? Instead put the 5 lakhs in a bunch of mutual funds and take a loan for the maximum possible amount. In 5 years you would have paid off your loan, your car would now be worth perhaps half at 2.5 lakhs and your 5 lakhs may have grown even with a conservative allocation (balanced mutual funds) to 10 lakhs.

How much did you lose to the bank? You paid the bank 6.5 lakhs (per CarWale: 100% financing - hypothetical, EMI of Rs 11,012 for 5 years at 12%). You have the 10 lakhs from mutual funds and 2.5 lakh resale value for the car. You actually gained 6 lakhs in 5 years just because you didn't pay cash down!

But didn't you waste money paying the bank 1.5 lakhs as interest? Yeah but remember they took the risk of you making the monthly payments for 5 years. They ran the risk of any undue depreciation of your car. In India if you cannot make the monthly EMI on your car you could probably not just walk away from it. But even in the worst case scenario say if you lose your job or life, the bank has the liability and your liability is somewhat limited.

Try to treat the EMI as a monthly expense. You pay Rs 11,012 on the loan for say a total of Rs 15,000 a month including fuel and maintenance. Think you are paying Rs 300 a day for the privilege of driving your car.

Finally don't forget after you pay-off the loan after toiling arduously for 5 long years, savour the moment. You actually accomplished something.
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Old 27th April 2010, 12:51   #104
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I think the views are very regional and its quite evident in the choices we make. I think Bhpians from Bangalore are very conservative compared to the likes of Bhpians from Punjab.
However I think we have missed the goal completely for why this thread was originally started by me. Everyone who is calling a car depreciating asset, well it is, so is our tooth paste, so is every time you choose to have dinner outside. Just like we dont skimp on quality restutant and wine, or save 2 rs on tooth paste to get a cheaper tooth paste. Similarly we dont all drive Nano's. We like to indulge a bit. Life is not all about saving for our kids, its also about living it.
And for my friend who just said that ANHC wont bring more status to someone driving Swift, this coming from someone who owns a small hatchback, and those below my pay grade own ANHC etc, yes in an ideal world, in your corporate circle, you maybe right, there is no status. But try explaining that to a hot chic who works in the other dept? Getting the point...

So that brings me again to the following point:

Take Home Salary (hypothetically speaking): 1.75 lakhs

Home EMI: 50k

Car EMI: Nil

Living Expenses: 40k

Downpayment Money: 3 Lakhs

Now with those figures, what car should this person be looking at??? Given that risk taking appetite goes down with age. What would be an ideal car, not overboard, not conservative. A sensible decision in my current situation?

Disclaimer: These are just hypothetical numbers and have no resemblence to actual figures living or dead!

Last edited by aseem : 27th April 2010 at 12:55.
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Old 27th April 2010, 13:17   #105
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Lets Assume you invest as much as you spend on your home EMI.

This brings your total expenses to 140,000. Of the Remaining 35,000 I would put aside a sum of money for future health related expenses (this would depend on the size of my family)

If you have say Rs 20,000 left at the end of that, I would be willing to spend 15,000 per month on my cars EMI. Perhaps the new Vento that is coming out?

Or you can save up another 3-4 lacs and buy a used Civic/Accord outright?

P.S If that hot chic needs to look at your car to be impressed by you, I'd stay the heck away from her :P
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