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Old 16th April 2010, 11:41   #91
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The bank calculates the interest each month and adds it to the amount outstanding in my loan account. If I have paid more than my EMI in one month, that month when they calculate the interest, the total oustanding principal will be lesser?
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The important thing to keep in mind here is banks calculate the interest at the end of a month. Which means if your payment is 15K pm, and you make a 30K payment, the balance directly goes towards your principal, and next month's interest will be calculated in the new reduced principal. that is the only way to improve on your payments. prepayment penalties are something that negotiated before taking a loan in order to be able to do this.
So my understanding about how loan interest is calculated is correct. Its better to pay more than the EMI each month(if you can afford to) in order to save on interest payments in the long run, I didn't know they charged a penalty for paying more than the EMI each month? I have to check my documents again to see if there is anything like that.
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Old 16th April 2010, 12:01   #92
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ahha. Interesting thread. for one, good to see that some people actually read my posts

Now I can only say two things:
  • Just write down every single expenditure you do, and make cashflow projections every now and then (atleast at the beginning of the year, and once every 3 months).
  • Always keep your eye on how much you need in the event of an emergency (accident or parents' old age or job loss) - doesn't matter if you have all the cash. You need to have a tacit understanding with family members that they may need to pool in. So that should address any liquidity concerns. Ofc, having spendthrift (almost) broke relatives is a really bad state.
Rest you'll figure out what you need to doin your individual case. No point giving any vague statements.
PS: As for EMIs, just take the reducing EMI option, not the reducing tenure option!

Last edited by phamilyman : 16th April 2010 at 12:03.
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Old 16th April 2010, 22:53   #93
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I didn't know they charged a penalty for paying more than the EMI each month? I have to check my documents again to see if there is anything like that.
banks do that because it's their business, prepaayment throws their projections off. In US most of the banks now allow no prepayment penalty. In India because of thin margins (I assume), its a common practice to keep prepayment penalties.

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PS: As for EMIs, just take the reducing EMI option, not the reducing tenure option!
while I understand what you are saying, I can not comprehend why would one reduce EMI by paying more than EMI. The whole purpose of overpayment is to pay it off (and own the house) earlier. Unless you mean reducing the EMI in future by paying more now, which is illogical. Or if you meant it in some other context.
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Old 16th April 2010, 23:03   #94
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I meant something simple.

HomeLoan EMI = post tax 9.25% (in my case).
Savings ac = pretax 3.x %, FD = pretax 6.x%

So its eminently reasonable for me to prepay.

that said, two prepayment models exist:
> reducing tenure. So if my monthly EMI is x and some month I get extra cash and pay 2x, then the monthly EMI remains same, but tenure reduces by 1 month.
> reducing EMI. If I prepay any amount - the EMI reduces.

The latter is good for working professionals. With year end bonuses - you can make a one-shot payment, and have your monthly fixed cost go down. With reducing tenure prepayment clause, the difference will really pinch in a couple of years!
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Old 16th April 2010, 23:28   #95
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With reducing tenure prepayment clause, the difference will really pinch in a couple of years!
I see, I guess the part in bold is the problem.
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Old 23rd April 2010, 17:57   #96
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Default Another good thread

Am staying tuned to this.
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Old 23rd April 2010, 18:27   #97
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A friend once advised me not to buy a car whose price is more than half of my annual income. As per him, if the car's cost (incl regn, tax etc) is more than that, it is like living on the edge.

What is your take on this?
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Old 27th April 2010, 12:05   #98
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@SBRAJ: Your friend is still optimistic. In my opinion it is 1/3rd of the CTC for employed middle class family. I don't like to comment on business people

In an ideal situation, one should be able to pay atleast 50% of the car value as downpayment (i.e., you should have saved before you spend ). The rest of EMI should not exceed 10% of net take home per month and the loan should complete within 2 years.

Eg: If CTC is 10L, you should look at car around 3.5L. Within 3.5L, you should be able to pay 1.75 as down payment and rest as EMI of 5,000 ~ for 2 yrs.
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Old 27th April 2010, 12:29   #99
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a sensible thread indeed! will go through all the posts when am a bit free..

Though would want to add my thoughts which is on the same lines of Pramod.

Offlate even i started to think on upgrading the car as it is getting old but when i started to put my calculation i felt buying a new car for me was not sensible at all..

buying a 10+lac vehicle for an emi of 60 months, that will be 12k per month and the extra i pay in 5 years will be around 1.5lacs.

My belief is if you buy something use it properly, this holds really good with the automobiles esp if you love driving, so in this case need to keep atleast 5 k for fuel expenses and 5 to 10 k for travel related expenses.

This way my minimum expenditure on the automobile and travel will be about 25k per month, if i want to save money then need to just park it and use it only if necessary as i dont like driving in city.

After thinking all this i felt i really dont need a new car at this point
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Old 27th April 2010, 12:30   #100
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Originally Posted by sridhar_setty View Post
Eg: If CTC is 10L, you should look at car around 3.5L. Within 3.5L, you should be able to pay 1.75 as down payment and rest as EMI of 5,000 ~ for 2 yrs.
If my CTC is 10L, I would rather wait for 5 years to save decent to buy a car with full cash rather than opting a loan.
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Old 27th April 2010, 12:42   #101
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If my CTC is 10L, I would rather wait for 5 years to save decent to buy a car with full cash rather than opting a loan.
I did that. I paid 2.31 cash and bought my second hand Ikon (24K kms in 7 months now). I checked with various sources for the best personal loan rate for 2.25 lakhs (sbi came with 8.5 %).
Now I'm putting that emi as recurring deposit for 2 years to recreate the 2.31 I spent on my car. Just that instead of paying emi, I get a sense of satisfaction that I'm saving on regular RD.
All that CTC thing is a myth. I end up with very less cash. So took me ages to save and get a balance of 2.3 lakhs which I blew on my car!
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Old 27th April 2010, 12:57   #102
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If my CTC is 10L, I would rather wait for 5 years to save decent to buy a car with full cash rather than opting a loan.
I agree with you if you are thinking of an upgrade. But what if you want to buy your first car? What will you do for those 5 years? Take into account the amount you would be spending on traveling in auto/taxi and do your math again, not to mention the convenience part.
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Old 27th April 2010, 13:04   #103
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To hit a balance in todays date that is with what we earn and what we spend its a big challenge..

Something what i have learnt after committing some stupid mistakes...

We need to set priorities, these days we have lots of avenues to spend and one should know what is that important stuff which he needs to spend..
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Old 27th April 2010, 13:07   #104
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Thats a good move! which is way better then you going for a loan and finally paying extra on the interest.

btw i think a used car one should avoid picking on loan as i feel there is a good possibility of maintenance expenditure to crop up after some point of time...

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Originally Posted by MX6 View Post
I did that. I paid 2.31 cash and bought my second hand Ikon (24K kms in 7 months now). I checked with various sources for the best personal loan rate for 2.25 lakhs (sbi came with 8.5 %).
Now I'm putting that emi as recurring deposit for 2 years to recreate the 2.31 I spent on my car. Just that instead of paying emi, I get a sense of satisfaction that I'm saving on regular RD.
All that CTC thing is a myth. I end up with very less cash. So took me ages to save and get a balance of 2.3 lakhs which I blew on my car!
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Old 27th April 2010, 13:40   #105
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Now I'm putting that emi as recurring deposit for 2 years to recreate the 2.31 I spent on my car. Just that instead of paying emi, I get a sense of satisfaction that I'm saving on regular RD.
Exactly; this is what I always suggest. But did you know PORD give 8% compared to bank's RD of current 6%?

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All that CTC thing is a myth. I end up with very less cash. So took me ages to save and get a balance of 2.3 lakhs which I blew on my car!
Sorry, couldn't get the complete context here

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I agree with you if you are thinking of an upgrade. But what if you want to buy your first car? What will you do for those 5 years?
Simple - start early; like someone's signature reads in TBHP, work from backwards; means, if I need a car by this year, how much should I start saving & how much am I earning etc.

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Take into account the amount you would be spending on traveling in auto/taxi and do your math again, not to mention the convenience part.
Nope, take a city bus; it works out cheaper. Pal, so you work hard to pay off the taxi bills or to pay yourself? Without struggles, there's no convenience; unless you're born with a silver spoon.

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Originally Posted by lohithrao View Post
To hit a balance in todays date that is with what we earn and what we spend its a big challenge..
Quote:
Originally Posted by lohithrao View Post
We need to set priorities, these days we have lots of avenues to spend and one should know what is that important stuff which he needs to spend..
^^^Golden words

Last edited by aargee : 27th April 2010 at 13:42.
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