[abeerbagul]

If you have 100% downpayment for a new car, you can also use it to buy a pre worshipped car of one or two segments higher.
This is not possible with loan, because used car loans come with very high interest rates.
E.g. Someone who has 9L downpayment for a petrol sedan like Etios, Sunny, can use this to buy a 3 year old Civic or Corolla Altis.
Or a 6L downpayment for a Swift can be used to buy a 3 year old Honda City.

[bluevolt]

Taking a car loan is much better than putting all your available cash for purchasing a car (if you have surplus cash then their is no issue at all)

So it depends from person to person - I will take a loan and buy a new car any day over pre-worshiped cars.

5 year loan period is best IMO, after that loan period is complete you can enjoy EMI free car for 2-3 or even more years, save money as a down payment for the next dream car and the cycle goes on.

Originally Posted by carboy

1) Banks must be filled with stupid people.

2) They are giving you money at 12-14% interest when they could themselves be using that amount to invest the amount elsewhere and getting much better returns. May be invest in realty like someone else suggested. Especially considering banks usually are filled with guys who spend their whole life studying & working in finance, economics and investments.

3) Next time I meet a banker, I will laugh at his face for doing something stupid and silly like giving loans to people.

4) Actually, I asked about sure investments giving you more 'sure' returns that whatever you pay for the car loan.

5) How is this a hybrid way? Don't banks ask for 10-15% down payment on loans anyway? I think your way is called the 'loan' way.

1-Banks are filled with some real intelligent people. I am sure of this. And i dont work for any bank. Maybe you should try talking to some people. you might change your opinion. Every organization has some fools and some intelligent people. Based on this, one shouldnt judge the whole lot. they dont wear a tie, no formals, and they are not as sauve as IT people are. but they are not fools.

2- Banks are not supposed to invest their money anywhere. This will bring the whole country down. This is a rule. banks are supposed to make money only on Loans.
Banks are also not supposed to sell gold biscuits. so they make coins + charge some making charges and they sell it. Please go through the banking basics. OT.
LIC of india owns significant amount in the top notch indian companies. You name it, they have a share in it. Why? because they can invest anywhere. (Subject to some conditions.) Today, they can control the whole indian market. because they take money from people and they invest. They are the ones who make tons of profit too.

3) if you laugh at a banker, then you are fooling yourselves. sorry no offence meant. Loan is one word, which is keeping the whole world intact. please give some respect to it. A kind request.

4) Opportunities dont give you any invitations in advance. if they come, you should be ready/capable to take it. Regarding 'sure investments', i am not sure till when i live. So regd money i cant say. because i am not sure of my life.

5) I ll give an ex: ofcourse only smokers will understand it better. If you have a cig and you dont have a light, you go and ask for a match and lightup your cig. you are indeed asking some one/taking a loan of a match stick. does it mean that you are a loaner? nope. same is the case. You have ability to buy it cash down, but you dont buy it because of un forseen circumstances which might come up. You can close loan anytime you wish. + you can buy something property or some other asset may be after one year or two. This is one reason why i prefer to buy a new car rather than a preworshipped one. Anyways, i use the car for atleast 6 years so the used one doesnt make much sense.

May be right, may be wrong. there is no correct answer to this. These are just opininons popping out based on past experience.

[carboy]

Originally Posted by gemi_kk

2- Banks are not supposed to invest their money anywhere. This will bring the whole country down. This is a rule. banks are supposed to make money only on Loans.

Then whoever made this rule must be a stupid person. Because as per a lot of people in this thread, there are sure fire investments which give far higher returns as long as you are smart and do good research.

Originally Posted by gemi_kk

Loan is one word, which is keeping the whole world intact. please give some respect to it. A kind request.

I think I am one of the few people in this thread who is actually giving iloans respect. I think it's an excellent way to make money. Most other people seem to think they can do better than banks if they had the same capital banks did.

Originally Posted by gemi_kk

5) I ll give an ex: ofcourse only smokers will understand it better. If you have a cig and you dont have a light, you go and ask for a match and lightup your cig. you are indeed asking some one/taking a loan of a match stick. does it mean that you are a loaner? nope. same is the case. You have ability to buy it cash down, but you dont buy it because of unforseen circumstances which might come up.

I don't know what you mean by 'you are a loaner'.

But regarding the rest of the paragraph, if I understand correctly, you are saying that even if I have a match, I should not use it but instead borrow a match from someone else to light my cigarette.

[Warwithwheels]

Another point in favor of buying on finance.

Most banks insist on taking an insurance for the loan amount to cover the risk in case of unforseen circumstances on payment of a paltry premium.

[carboy]

Originally Posted by Warwithwheels

Most banks insist on taking an insurance for the loan amount to cover the risk in case of unforseen circumstances on payment of a paltry premium.

Can you tell me what's the cover, what's the paltry premium and what's the period?

Originally Posted by carboy

I don't know what you mean by 'you are a loaner'.

But regarding the rest of the paragraph, if I understand correctly, you are saying that even if I have a match, I should not use it but instead borrow a match from someone else to light my cigarette.

Mate, i am a Loaner.
The one match stick might come to use, if i am travelling, on a highway, at night when there are no other people on road.

Let us leave this here. there are Pros and cons for each. And i prefer to take a Loan. In my opinion, the advantages outweigh the disadvantages and at a premium price, which i am ready to pay.

[carboy]

Originally Posted by gemi_kk

The one match stick might come to use, if i am travelling, on a highway, at night when there are no other people on road.

I can understand someone on a highway who wants to smoke more than one cigarette but with just one match stick - if it is a one-off case. But it is happening all the time, then there are other things to be considered - even before the question of loan or outright comes up.

Originally Posted by gemi_kk

Let us leave this here.

Sure.

[Warwithwheels]

Originally Posted by carboy

Can you tell me what's the cover, what's the paltry premium and what's the period?

This is what I am talking about http://www.sbilife.co.in/sbilife/content/10_4270#4

Scenario 1:

Suppose Mr. X, a salaried individual buys a 10 Lakh rupee car with ALL his hard earned money that he saved over the years.

Within one month of buying the car, he passes away in a tragic accident leaving behind his family without a penny of savings.

Scenario 2:

He buys the car on loan. He insures his liability by paying about 2% of his loan amount (which is also financed) as a single premium.

The same unfortunate thing happens and he passes away.

The insurance would pay off his liability leaving his savings intact for the family.

Which scenario would you choose?

[carboy]

Originally Posted by Warwithwheels

This is what I am talking about http://www.sbilife.co.in/sbilife/content/10_4270#4

Scenario 1:

Suppose Mr. X, a salaried individual buys a 10 Lakh rupee car with ALL his hard earned money that he saved over the years.

Within one month of buying the car, he passes away in a tragic accident leaving behind his family without a penny of savings.

Scenario 2:

He buys the car on loan. He insures his liability by paying about 2% of his loan amount (which is also financed) as a single premium.

The same unfortunate thing happens and he passes away.

The insurance would pay off his liability leaving his savings intact for the family.

Which scenario would you choose?

You haven't said how many years of loan do you need to pay 2% of the loan amount for, but I will assume it's 5 years.

2% of 10 Lakh is Rs. 20000.

Instead you take LIC's Anmol Jeevan I term insurance for 5 years for 10,00,000. If you want to pay a single premium, you need to pay Rs 10,000
for this policy. (assuming you are 30-35 years old)

Now, if you have to pay 2% for a 2 year insurance against loan, getting insurance on your own would be even far cheaper.

LIC term plans are pretty costly as compared others in the industry. You could probably get a term policy even cheaper with most of the other term insurance vendors.

I think you think that 2% is paltry because you are probably comparing it with whole life insurance (or money back insurance policies). Whole Life and these kinds of insurance policies again aren't the financially smart kind of insurance. For most people for whom term life is available, it usually makes much more sense than buying money back/whole life kind of policies. In reality 2% is pretty high even considering a 5 year period.

[abeerbagul]

There is no point in just insuring an auto loan. The conventional wisdom in insurance is that you should have 10 times your annual income as term insurance.

If Mr X already has this insurance, whether he buys the car with full downpayment or with a loan doesnt matter, since term insurance is supposed to cover all liabilities plus give a decent annuity to his family.

[mayankjha1806]

Originally Posted by carboy

Then whoever made this rule must be a stupid person. Because as per a lot of people in this thread, there are sure fire investments which give far higher returns as long as you are smart and do good research.

That's so easy for you to say that.

Banks are the nerve center of the economy and they hold lot of small savings and money from the general public. if they are allowed to invest in more speculative investments, including the stock market. there is a chance that they loose all the money, and when that happens its bound to bring the whole economy to standstill.

As an example what happened in the great depression, post which these rules were put in. Although there are different types of banks which are allowed to invest in Stock and other risky investments, and by definition the money invested with them is risky.

So in short people who have made these rules, have made them keeping in mind the safety of your and my money. Calling them stupid is, well.

Originally Posted by carboy

Read this essay by Warren Buffett.
http://www.tilsonfunds.com/superinvestors.html

I did read it, as much as i could. I find it hard to imagine the guy who made billions by investing in stock market is suggesting others to not do the same. My take away from the article is, its a speculative form of investment, riskier, but if someone stays in long and steady the returns almost always beat other form of investments.

On the HDFC top 200, yes the managers managing that are smart. What you are looking at is returns only in last one year, wherein market had taken some beating and so most funds had lower returns. This fund has been performing over last 16 years and if one calculates its CAGR over 5 years + range it should come over 14%+, I have not done it fully but this is what i see on the web site.

PS: VR says over last 16 years this fund gave 22% annualized returns. I would request you to do decent research before pulling down something out of the blue. Here is what VR says about the Fund.

We like this fund for its consistent long-term performance with over 22 per cent annualised returns since its launch 16 years ago over both rising and falling markets.

[Prodigyy]

Originally Posted by carboy

Then whoever made this rule must be a stupid person. Because as per a lot of people in this thread, there are sure fire investments which give far higher returns as long as you are smart and do good research.

Investment & Merchant bankers are there meant for this specific job of investment of there money to garner greater returns. Banks have been made not to earn hefty amounts of money like say 20% or more worth the return on every penny invested, but to serve the public in general & for the betterment of the society & business atmosphere on the whole.

To garner returns in the range of 15% and above Investment & Merchant banking divisions have been set-up. I don't think the policy makers have been anywhere close to foolish in making these policies.

As far as the loans are concerned, i think its a personal preference for everyone. There are some people of take loans to pay them off well before its payment term, whereas there are others who have the ability to pay off the loan but still choose not to due to other financial commitments & unforeseen circumstances. For me, i have been paying EMI's since the past 6 months for my car loan & have enough with me to pay off the entire amount within a flash, but i see myself using that cash for other better usage, where my money would grow manifolds better than paying off my loan.

But then, how much percentage of Indians do you think are fortunate enough to pay off there loan amounts within an year of borrowing it ?? Not many i guess. If those same people were to wait for enough money to be collected, i don't think we would be seeing about half as many vehicles on the road as we see today.

[carboy]

Originally Posted by mayankjha1806

That's so easy for you to say that.

I was being sarcastic.

Anyway, the point is that assuming you will always be getting more than what you pay as loan interest is speculative!

Originally Posted by mayankjha1806

I did read it, as much as i could. I find it hard to imagine the guy who made billions by investing in stock market is suggesting others to not do the same.

He isn't suggesting anything even close to that. Warren Buffet (and his teacher Benjamin Graham) have always said you cannot *not* invest in stocks.

Originally Posted by mayankjha1806

On the HDFC top 200, yes the managers managing that are smart. What you are looking at is returns only in last one year, wherein market had taken some beating and so most funds had lower returns.

So in the same period, if you had money to buy a car outright & you instead took a car loan & invested your own money with as much expertise as the HDFC Top 200 managers, what would have happened.

Originally Posted by mayankjha1806

This fund has been performing over last 16 years and if one calculates its CAGR over 5 years + range it should come over 14%+, I have not done it fully but this is what i see on the web site.

I posted the returns for 3 years which is the period for what a lot of car loans happen.

Originally Posted by mayankjha1806

PS: VR says over last 16 years this fund gave 22% annualized returns. I would request you to do decent research before pulling down something out of the blue. Here is what VR says about the Fund.

16 year figures are meaningless because a car loan doesn't last for 16 years.

You are totally mistaking my point. I don't say do not invest in the market (neither does Warren Buffet). I am not even saying do not invest in the market on borrowed money (which is essentially what is happening if take a loan inspite of having money & then use your own money to invest in stocks). All I am saying don't do this & then claim this is the financially smart thing to do. Just because it worked out doesn't prove it (which was essentially what I tried to say when I quoted the coin flipping example).

If you have money to buy something like a car & you do not use it to buy a car but take a car loan & use your own money for investments, it not a financially sound thing to do.

Originally Posted by Prodigyy

Investment & Merchant bankers are there meant for this specific job of investment of there money to garner greater returns. Banks have been made not to earn hefty amounts of money like say 20% or more worth the return on every penny invested, but to serve the public in general & for the betterment of the society & business atmosphere on the whole.

To garner returns in the range of 15% and above Investment & Merchant banking divisions have been set-up. I don't think the policy makers have been anywhere close to foolish in making these policies.

I fully agree with you upto here. I was being sarcastic to prove the opposite of what I wrote.

Originally Posted by Prodigyy

As far as the loans are concerned, i think its a personal preference for everyone. There are some people of take loans to pay them off well before its payment term, whereas there are others who have the ability to pay off the loan but still choose not to due to other financial commitments & unforeseen circumstances. For me, i have been paying EMI's since the past 6 months for my car loan & have enough with me to pay off the entire amount within a flash, but i see myself using that cash for other better usage, where my money would grow manifolds better than paying off my loan.

This is what I am writing about. If there was a safe way by which your money would grow manifolds as compared to interest you are paying for a loan, then Banks wouldn't have had to operate under these rules.

Originally Posted by Prodigyy

But then, how much percentage of Indians do you think are fortunate enough to pay off there loan amounts within an year of borrowing it ?? Not many i guess. If those same people were to wait for enough money to be collected, i don't think we would be seeing about half as many vehicles on the road as we see today.

How is that a bad thing? Other than that, there are 2nd hand cars, there are new cars which are cheaper than the one you are taking out a loan for etc.

Again I am not saying one shouldn't take loans to buy a car if one cannot afford to pay for it outright

My point (for the last time) is 2 things
1) Taking a loan is my definition of living beyond your means. Again, I am not saying you shouldn't do it. I am saying you should acknowledge this and do it.
2) If you have the money to buy a car outright and you still take a loan, its doesn't make any financial sense. Again I am not saying you shouldn't do it - since we have a lot of people here who routinely outperform great investors. I am just saying it's not a financially smart thing to do.

Not taking a loan is a sure way to make 12-15% (or whatever is the car loan interest rate) on your money. There are no other such safe investments giving this kind of return.
But in the end, it's people's own preference.

[mayankjha1806]

Originally Posted by carboy

I was being sarcastic.

Anyway, the point is that assuming you will always be getting more than what you pay as loan interest is speculative!

Thank you, looks like my understanding of sarcasm needs to be beefed up. Yes i agree its speculative, risky, but not too difficult.

Originally Posted by carboy

So in the same period, if you had money to buy a car outright & you instead took a car loan & invested your own money with as much expertise as the HDFC Top 200 managers, what would have happened.

I did not say it was in the same period, also i did not buy the car in last three years. I bought one in 2005 and another one in Dec 2011, and i liquidated my investments (for property) in 2008 and in 2012 .

Originally Posted by carboy

1) Taking a loan is my definition of living beyond your means. Again, I am not saying you shouldn't do it. I am saying you should acknowledge this and do it.
2) If you have the money to buy a car outright and you still take a loan, its doesn't make any financial sense. Again I am not saying you shouldn't do it - since we have a lot of people here who routinely outperform great investors. I am just saying it's not a financially smart thing to do.

But in the end, it's people's own preference.

Thank you, we are in absolute peace now. Agree with above to the T. BTW a small question, would you consider Debt Funds as safe, because even they beat the car loan interest rate quiet easily. What i am betting on is seems like there is sea of difference between your and mine definition of Safety.