[sunilch]

Originally Posted by sunilch

Any loan for a depreciating asset such as a vehicle (car in this case) is pointless for a salaried individual.....

I just thought about one more thing - It is possible that some PSUs have developed a heavy/sizable portfolio of 5 to 7 year car loans and they might not be performing well. This 10 year loan could be a tool to push those existing loans into 10 year ones and keep the loan book running by giving the borrowers more time, reducing their EMIs and trying to extract as much as they can, instead of writing them as NPAs in their books. In effect they might be trying to delay the impact on their books using accounting gimmicks.

But I don't have solid data to back this and hence this is just a thought. If someone has some sort of data in this regard, it will be helpful to read.

[Ragavsr]

Originally Posted by sunilch

I just thought about one more thing - It is possible that some PSUs have developed a heavy/sizable portfolio of 5 to 7 year car loans and they might not be performing well. This 10 year loan could be a tool to push those existing loans into 10 year ones and keep the loan book running by giving the borrowers more time, reducing their EMIs and trying to extract as much as they can, instead of writing them as NPAs in their books. In effect they might be trying to delay the impact on their books using accounting gimmicks.

PSU banks are very very conservative in lending to individuals unless you are Mallya or Nirav Modi.

Car loans constitute a small portfolio for PSU banks, most of the car loans are financed by the private players, mostly the big 3 private banks.

[Durango Dude]

It's for the "I want it all and I want it now" brigade: there's no dearth of them now. There're a lot of young guys making ₹ 50k and more a month and in their mid twenties (coming from affluent backgrounds and no financial commitments to family) who could be enticed by these loan terms and may go for the "overkill".

[TwistOfFate!]

IMO, taking a loan to fulfil your dreams [of a big(ger) car] isn't the right thing to do. Let alone loans with repayment period beyond 3 years, that do not contribute to your Income Tax deductions anyway.

If it's a dire need to have a car at home, save up each month enough money to pay >50% of the OTR price as down-payment and go for a loan for the remaining with a maximum repayment period of 36 months. This way, you're already used to keeping aside certain amount from your salary which eventually goes into the EMIs.

Also, I'm sure we salaried people would anyway earn at least 8-15% minimum hike annually. By the time you clear the loan, your salary is already 30% higher than what it was when you took the loan. So your savings would continue too!

[haisaikat]

Originally Posted by TwistOfFate!

IMO, taking a loan to fulfil your dreams [of a big(ger) car] isn't the right thing to do. Let alone loans with repayment period beyond 3 years, that do not contribute to your Income Tax deductions anyway.

If it's a dire need to have a car at home, save up each month enough money to pay >50% of the OTR price as down-payment and go for a loan for the remaining with a maximum repayment period of 36 months. This way, you're already used to keeping aside certain amount from your salary which eventually goes into the EMIs.

Also, I'm sure we salaried people would anyway earn at least 8-15% minimum hike annually. By the time you clear the loan, your salary is already 30% higher than what it was when you took the loan. So your savings would continue too!

Sorry but I think not every industry guarantees 8-15% hikes every year.

Nevertheless, many a time the urge is instant, the need is instant. Remember we are living in a "instant" world where we are impatient. If we are posting a new picture on FB we expect instant likes, if it does not happen it leads to depression. Similar things apply for all capital purchases too. Not just limited to cars but I see marriages and honeymoons also done on personal loans to maintain status, waiting 5 years to save for a marriage is a thought of the past, let alone availability of right partner which cannot wait.

Compare this to previous generations who purchased plot and built house on the verge of retirement with savings of life. Nowadays it's opposite, if you don't have house or car (for men) of the right status your potential of finding a bride is considered as ruined.

Like someone said earlier nowadays the salary is higher which enables one to have more EMI. Hence be it car or other needs fulfillment, the loan and tenure should not be measured in depreciation, time criticality is what matters more than anything to modern generation and we have to accept that and move ahead with time rather than staying stagnant and counting differences.

[docprashant]

Well this indeed is a thought provoking thread and the arguments posted by all hold fort. I will just reassert a few things from my POV:

1. When it comes to cars we are dreamers who think primarily from the heart as I too strongly believe that a car is not an appliance but an extension of your personality. If you are able to get hold of a tool which just might enable you to get that wall poster ride, then why not?

2. On the other hand a 'mild' sense of financial acumen has to be maintained so as not to fall into a debt trap.

3. A strategic long term loan (with plans in place for things such as bullets, foreclosure etc) can be a valuable tool. Suddenly a G-Wagen does not seem a distant dream ;-)

4. P.S: I am not talking about an ego boost of owning a car which might make your peers sit up and take notice, but rather a ride which one feels deeply connected to and is contented with.

[Chetan_Rao]

One thing that's changed over time, and one that never will.

Originally Posted by haisaikat

....nowadays the salary is higher which enables one to have more EMI....

Incomes have gone up, but so has its volatility. A majority of the previous generation could make long-term financial commitments based on their salaried income, not true today.

Hence be it car or other needs fulfillment, the loan and tenure should not be measured in depreciation, time criticality is what matters more than anything to modern generation and we have to accept that and move ahead with time rather than staying stagnant and counting differences.

Lenders won't care if borrowed money was spent on wants or needs, it needs to be repaid.

More and more people are borrowing money to buys stuff they want, and are unwilling to wait until they can afford it, on the assumption that their incomes will remain stable and/or increase proportionately. None of this can be taken for granted anymore, so if anything, it's even more important for higher (but more volatile) income people to make sensible financial choices, not less.

[haisaikat]

Originally Posted by Chetan_Rao

Incomes have gone up, but so has its volatility. A majority of the previous generation could make long-term financial commitments based on their salaried income, not true today.

I agree with this point of view on volatility. However it must be noted that the volatility is mostly with private sectors but in India over last few decades government sector and some public sector organizations have caught up big time on salaries and benefits so much so that nowadays we see a shift in mentality to at least go for government / public sector (banks, etc) exams once before opting in private sectors. Most folks are not serious but yet they give a shot hoping for a miracle in the dream of getting a guaranteed / secured life. My point being while salaried class have fatter salaries today they are usually like in many middle class families comparatively recessed on wealth and assets creation and having lesser EMIs for the same dream (be it car or anything else) gives them the room to also focus on other aspects of life.

Originally Posted by Chetan_Rao

More and more people are borrowing money to buys stuff they want, and are unwilling to wait until they can afford it, on the assumption that their incomes will remain stable and/or increase proportionately. None of this can be taken for granted anymore, so if anything, it's even more important for higher (but more volatile) income people to make sensible financial choices, not less.

I cannot agree more, very well put here. Please also note that unlike yesteryear's time, nowadays lenders also have targets as most are public traded and shareholder sentiment is linked to increased returns which boils down to more growth and profits. As a result they are more reckless and desperate to lend you that money that was otherwise not so easy couple of decades back and which was also a contributing factor to our predecessors being forced to save up big time for capital purchase. I recall my father in law purchased his daughter's Compaq Presario for a 6 year loan. So in my opinion be it now or earlier the pattern existed may be more now than ever.

Originally Posted by docprashant

1. When it comes to cars we are dreamers who think primarily from the heart as I too strongly believe that a car is not an appliance but an extension of your personality. If you are able to get hold of a tool which just might enable you to get that wall poster ride, then why not?

2. On the other hand a 'mild' sense of financial acumen has to be maintained so as not to fall into a debt trap.

3. A strategic long term loan (with plans in place for things such as bullets, foreclosure etc) can be a valuable tool. Suddenly a G-Wagen does not seem a distant dream ;-)

4. P.S: I am not talking about an ego boost of owning a car which might make your peers sit up and take notice, but rather a ride which one feels deeply connected to and is contented with.

Very well put together.

I think responsible borrowing is the key and one should not be taking an EMI for granted and have longer terms thoughts on repayment as well apart from building assets and contingency funds for future while enjoying the material world and its pleasures.