[Prodigyy]

Originally Posted by carboy

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

Originally Posted by carboy

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.

Point taken, there are no safe & sure shot ways to make one's money grow by 12% p.a., but IMO there are a decent enough number of ways to make one's money grow at about 14-15% CAGR with relatively low risk investments too. Discussing those investments is meant for another thread, so i'll just leave it here. I for one, have had my fair share of losses, wherein i invested lakhs and could not manage to even break-even. Similarly, i have had investments where i have got my money to grow more than 2 times in about 2.5-3 years of time. This is a trade-off and this i guess applies to all financial investments. I hope you would acknowledge this.

Originally Posted by carboy

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.

This is the only place where my opinion differs from you. Taking a loan does not mean that one is living beyond one's means. I'll take my example, lets say i buy a 1 million rupee car, and i including all my liquid cash, investments and FD's, ULIP's, Mutual Funds etc etc., i have well more than that amount to buy the car outright, still i end up taking a loan of 35% of the amount for the car, this is not me living beyond my means, this is only:
1. a belief in myself and my vision that i can make use of that 35% money for a return of more than 10.75% (the car loan interest rate), that too without taking an uncalled for risk with my investment.
2. Keeping aside a comfortable amount of money for me to meet any unforeseen adversities that come-up in the immediate future (i.e., the next 4-5 months)
3. EMI amount of my car loan would put no amount of load on my pocket an year into the loan (since i foresee some promotions or salary hikes).

Again for point number 2 you mentioned, yes it doesn't really make financial sense in borrowing say Rs 1 Lakh & end up paying well more than that amount during the loan tenure, but then it is theoretically & in practice possible to earn more than 10.75% CAGR quite easily.

Originally Posted by carboy

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.

Again point taken and agreed to, but there are factors apart from financial factors with a car in India, this i believe is a given fact for Indians.

[DudeWithaFiat]

My two bits: Even if you have the money, take a loan.

Why?

Say the car costs Rs.5L. Buy 10 cents of land of Rs.50,000 per cent with that amount. The way how real estates of the range 40-50k is rising, even if its barren, you can easily sell it with 20% profit after an year or so. Continue buying with the profit, by the time the loan is repayed completely with the interest, you will have earned a lot more than the interest paid.

Haven't done calculations on this, but when looking at cars as investment, its not really a good investment unless its a classic.

[carboy]

Originally Posted by mayankjha1806

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 .

My point was that - if 3 years back someone had money to buy a car outright. He took a loan instead & invested his money in the stock market. He may have done was well as 8.3% by HDFC Top 200 or worse or better.

Originally Posted by mayankjha1806

What i am betting on is seems like there is sea of difference between your and mine definition of Safety.

My definition of safety is different in particular case - choosing between using money to buy a car or instead taking a loan.

Since I invest my money in stocks all the time, there my definition of safety probably matches yours. But there I am using my own money.

In the case where I take a car loan inspite of having money & use the money to buy stocks - I consider this case identical to take a loan and use that money to buy stocks. Here my definition of safety is much higher.

[clevermax]

Voted for Outright purchase. Don't like to read justification and/or bashing for both the options, I'd like to make my purchase the I want

I am surprised to see almost equal number of votes for both options as I was expecting something like 20% (Outright) and 80% (Finance)

[n.devdath]

Dunno if this has been said earlier but I voted for Loan because:

1. A loan enables me to buy a car much more expensive than my savings. For example, I can buy a Pajero Sport today on a loan but can barely afford to buy a Scorpio LX with my savings.
2. A loan ensures that I have some reserve cash readily available or emergencies.
3. A loan ensures that I get to build and maintain my CIBIL report.
4. With pre closure and part payment options, a loan is also very flexible to repay these days.

[90BHP]

By now its almost clear that we have an almost equally divided opinion about the way to purchase a car. I wanted to bring a slight flipside to it & see what you all think is a way forward.

Now, regardless of cash or loan you are buying a depreciating product. So eventually by the time you complete 5 years (average life span of cars for a household) the value is almost down to 70% or more of the OTR price. My point is it sensible to keep a car only for say 2.5 to 3 years max & then sell it off. At this point you may have paid off half the cars value to the bank + the cash you put in & the price of the car in the market may also be around the half of OTR price (At Individual level, dealers always try to loot you). If given there are no pre-payment penalties as well, what do you have to lose ?

I am in a similar dilemma right now & would appreciate your inputs.

My added problem being my current EMI is with a private bank at a horrendous rate of 12.5% which I want to close & move to a nationalized bank, however for some reasons there are no car loan transfers like the home loan transfer option. The easiest option for me is to sell it to buy my brother but I dont wish to block his credit limit in case he wants to get a loan later. Or buy a new similar or lower priced car & get away with this loan. What are your views ?

[TaureanBull]

Very interesting discussions indeed! The voting share is almost equally divided. The thread has been patronised by some and they believe in defending their views to the core even if the there are no fixed answers.

Members are lobbying hard to convince others to tow their line of view. There are some wise comments and some half baked knowledge. Really fun to read five odd pages.

The OP started this thread probably for the sake of a healthy discussion and he has been missing ever since. If some one wants to decide loan/no loan based on this thread then he is in deep trouble. We try to align ourselves to the views we like. We search for replies supporting own views.

Loans/No Loans is based on our financial health, requirements, personal tastes/likings, upbringing etc. No matter how much one lobbies his view points, these factors wont let the mind set of a person change. People do seem to miss out the point that the thread is meant for "salaried people".

I personally prefer loans because:-

1. I can pay.

2. I want bigger/better car and want to enjoy my life.

3. I invest the surplus cash elsewhere and have been getting good returns and confident of getting in future too. (BTW there is nothing like sure investments...read deeply...even governments/financial system can fall and sure investments go bad. Its just comparative in terms of risk and therefore, more risk means more volatility).

4. I want to appease my bank and help unemployment by making loan people make their living.

5. I dont care what other person thinks about taking loans. I do respect their views for sure. Do I mind people going for all cash? No. Its their money.

OT : Lets not bicker over finding out mistakes of people from "other group" or waiting for an opportunity to answer back each and every line to defend own view point. Sad to see this coming from some senior members. Lets respect other decision and view point and accept the argument with grace. I am ready for criticism.

[PatienceWins]

Voted for outright purchase. Reasons:

1) Dealing with interest is not allowed in my religion, Islam.

2) I am not comfortable spending borrowed money on a depreciating asset. All my vehicles were bought with my savings/ investments. Even though I am passionate about vehicles, it does not make sense to borrow money for buying a depreciating asset. Whenever I feel the urge to upgrade, I think about people who cannot even afford a car. Reading Team-BHP thread on the economics of keeping 7 year old car also helps. It is not that I cannot upgrade, it only means that I cannot upgrade frequently.

3) Life without loan gives more financial freedom/ security. It will not become a headache if I decide to quit job to start a business or lose job as part of a major recession.

I would recommend reading Rich Dad Poor Dad as well as Cash Flow Quadrant by Robert T. Kiyosaki. Basically, stay away from liability and invest in assets that generate income on a periodic basis.

I am just sharing my view and respect others views as well. I am not going to debate or defend my views.

[oxyzen]

Outright purchase it is.
1. Car loan is around 12%. Today you cant invest with a 12% return on investment with no risk. If you can extraxt 12% or more ROI go for LOAN.
2. Some people worry about liquidity while paying upfront. Well in that case you probably should consider a cheaper alternative or wait a few more months.
3. No EMI = No burden

[DieselFan]

Voted Outright Purchase. Rationale -

1. In today's uncertain environment it is best if you keep future outflows less and limited to asset class only. Car falls under liability and not an asset.

2. Some people have commented that they can invest available cash into more productive investment that can fetch you more than 12% (Current car loan rate in most banks). This is clearly wishful thinking. No one can gaurantee more than 9% (FD rate) today and even with FDs we need to pay up 10% to 30% (based on the IT slab) as income tax and hence the actual return can be as low as 6.3%.

3. Others have said Put your cash in FD and take a car loan on the same (At 2% higher interest). This is one of the naive suggestions I have seen from a person who has very limited financial knowledge. All you need to do is Pay up the amount and do outright purchase of car and every time you have money open an FD for that amount for the remaining period (over a span of 5 years). This way you will get FD interest without having to pay an additional 2%. i.e. you buy 5 L car with outright purchase. after a year you get a bonus of 1L so open an FD for 1L for a period of 4 years. So as and when you get surplus money open an FD for that amount.

4. Paying upfront ensures that one do not live beyond ones' means. This may be a very important aspect to few people who have the habbit of spending more than they earn or spending their future earnings.

[antz.bin]

Sorry to interrupt this very economics oriented discussion but is this type of loan no longer available?

http://www.team-bhp.com/forum/indian...-car-loan.html

Because if it is, it makes the entire 5 page discussion futile.

Edit:

SBI Car loan is cheaper than 12%

For Term Loan and Overdraft:

0.75% above Base Rate, i.e. 10.50% p.a.

Source: https://www.sbi.co.in/user.htm?actio...d=0,16,393,395

P.S.: NOOB Alert

[Slick]

I think this would be one of the more enlightening threads especially for a noob like me.

When I started reading I was in favour of a loan, Now I am a convert.

Full cash is the what I think I'll bet on or at most a minimal amount of loan, knowing my limited ability to make smart investments.

Thanks a lot to @carboy and @MayankJha1806 though I think it got a bit heated up, The quality of posts was good.

- Slick

[abeerbagul]

I guess for a guy who has just started in his first job, buying his first car, it makes sense to take a loan. At this time, he will be more focussed on saving a downpayment for a flat, and any available cash would be more useful there.

But when upgrading to the second car, it would be an interesting exercise to calculate what percentage of your net worth (excluding real estate) will be spent on the car.

[Modifiedsachin]

Hi

financial calculations is not what I am good at, but what I did

1. Took a car on loan, so paying 15.5K evry month
2. Invested 9L in GOLD (Had an option of Gold binds or what ever they
call, or raw gold, opted for raw)
3. Bought the gold @ 27800 /10Gm
4. Today the same is @ 32400 / 10Gm
5. So made profit of 4600 / 10Gm total ~ 1,40,000
6. When compared to the amount I will be paying additional in 5
years, I have covered app 50% in first 8 months, so anticipating to
cover the rest in next 7-8 months.
7. So after 3 years what I will be gaining from the GOLD price hike
will be pure profit.
8. One more thing, even if the buying price at the end of 5 years will
be X & selling will be X - 1500, still I think I will make good profit.


Now if the GOLD market takes a great fall, then this Humpty Dumpty will be at least having the gold which he will gift part by part to his wife each year for all the festivals & will try to keep the volcano cool for few years

I hope what I calculated is going to help me.

Please put your views, so that I will be well aware if this is going to be one of the biggest blunders of my life.

[csateesh]

I am in this boat right now

I have voted for loan for the following reasons

1. Keep some spare cash in hand for all emergencies
2. Use surplus cash in any investment of choice MF's , FD's, Gold (ETF or material) based on your requirement
3. If you choose to sell the car after 2 / 3 yrs you can do so and limit the liability to a certain extent which may not be possible
4. Finally buying a liability (asset class) using spare cash isn't always recommended.
5. Finally the biggest reason of all - Thanks to inflation INR is depreciating and if you use it to buy a liability that depreciates effectively landing a double whammy

Would like to quote Warren Buffet - To be successful you must make the money work hard for you !!

OT : This thread has probably set the cat among the pigeons literally !!
I understand we would have different personal views but I am surprised to see defense in favour of their line of thinking.

The beauty of this forum was the diverse views. So let us just become aware of the possible views and see if we can choose the best

Happy holidays