Go for a loan OR pay upfront? Pros and Cons?

nayshak · 7th February 2007, 01:03

Hi,

I am pretty new to the car buying stuff. Enlighten me with your valuable suggestion.

What are the pros and cons - buying a new car by paying the full amount upfront or leaning towards loan

sn

Rehaan · 7th February 2007, 05:23

Check out this section for some complementary advice -

http://www.team-bhp.com/forum/buying-car/

cya
R

kalpeshc · 7th February 2007, 09:21

Dont know much about cars, but economically, paying upfront in this kind of market is always much better.

CrAzY dRiVeR · 7th February 2007, 10:03

Quote:

Originally Posted by kalpeshc

Dont know much about cars, but economically, paying upfront in this kind of market is always much better.

Yes... But then again.. You've got to have the full amount...

Well... Many people takel loans cause its easier for them to pay the EMI way, than save money and pay all in one go...

navdeep · 7th February 2007, 10:10

Its always to have liquidity. Assume you have 5 lakhs as savings and you purchase a car by paying full amount of 4 lakhs. You are left with a lakh only. But if you pay 1 lakhs and rest is financed, you may want some cash available for some emergency. Or invest in housing after a year or so. I hope it makes sense.

CrAzY dRiVeR · 7th February 2007, 10:55

Quote:

Originally Posted by navdeep

Its always to have liquidity. Assume you have 5 lakhs as savings and you purchase a car by paying full amount of 4 lakhs. You are left with a lakh only. But if you pay 1 lakhs and rest is financed, you may want some cash available for some emergency. Or invest in housing after a year or so. I hope it makes sense.

Exactly... If you have loads of income, and have ready cash to pay, then paying full amount makes sense...

For all those who buys cars with the maximum budget they can afford... It is always easy on them to go the EMI way...

msdivy · 7th February 2007, 11:01

Assume you have 8L.

Option 1: Spend all 8L & buy 8L car. After 5 years, you have only the car.

Option 2: Pay 1L as downpayment and take 7L loan (max funding) @ rate 10% for 5 years. You will pay 10.8L to bank in 5 years.
Invest 7L in mutual fund. Assuming the fund returns 20% every year, in 5 years, you will end up with 14L. So after 5 years, you have car & 3.2L cash.

Caveat emptor: The fund should return 20% every year for 5 years.

kkr2k2 · 7th February 2007, 11:02

If a car is a requirement, then go for the EMI.
If one is looking at a car as a desirable thing or as a luxury thing, then its better go for single down-payment way.

By the way, in the second case to be safe, go for the car which is 25% of your anual income. That is to buy a car of 3 lakhs, your anual income should be 12 lakhs.
(or)
Something like this, apart from your monthly income, if you happen to get an anual bonus of 3 lakhs you can go for the car. I know people here would be thrashing the hell out of me, after this. But considering the scratches, accidents, ICE, fuel bills, maintenance, depreciation.... there will not be a heart burn if the above said ratio is observed.
Note: For detailed costs check this thread:
http://www.team-bhp.com/forum/buying...tml#post303394

Businessmen!!, any insights into what I have said??

P.S. That was just my holy opinion. Anyone can differ/agree with it.

GTO · 7th February 2007, 11:12

Quote:

Businessmen!!, any insights into what I have said??

A car is not an investment. For us entrepreneurs and businessmen, EMI is the best option:

1. Why should I lock money into a car when I can use the same for business expansion?

2. Its way easier to get a cheaper car loan than a cheap business loan.

3. Even the interest that we pay on car EMIs is tax-deductible.

navdeep · 7th February 2007, 11:22

Quote:

Originally Posted by GTO

3. Even the interest that we pay on car EMIs is tax-deductible.

Please throw some light on this

sbasak · 7th February 2007, 22:50

When you take a loan, you pay say x% annual interest.

Had you not taken the loan, you can invest the money in some other place with say y% annual interest (return)

If x < y then
take loan and invest the money in hand elsewhere
else if x > y then
don't take loan, pay upfront [if you can afford]

If you can't afford paying upfront, then there is no choice and you've to take loan anyway.

cpserrao · 11th February 2007, 12:11

Hmmm...Paying the full amount on your own without taking a loan increases your chance of getting flagged by the IT dept. A friend of mine payed by cheque the entire amount and then received summons from the IT dept to establish where he got the funds from.

nayshak · 12th February 2007, 06:03

Thank you very much for all your valuable suggestion.

Can some one throw insight on leasing a car as well.

What are the precaution's a NRI has to take before leasing or taking a loan and what are other bargain points to be considered at Dealers location or at Bank.

Your vaulable suggestion are much appreciated. Thanks in advance.

SN

squarecut · 12th February 2007, 07:30

Avoiding IT department's queries is one main reason why it is better to go for loan, if you are a salaried person and your known source of income may not appear much to the IT department. Of course if you are a business tycoon, you can get away by paying full amount from your own money.

madhav · 18th March 2007, 12:13

Put less of your money in a depreciating assent and more in an appreciating asset.
If you spend 2 lac on a car and try to sell it in the open market after 2 days it will not fetch you 2 lacs. That simply means your money depreciated by x% in two days. And as the vehicle gets old, it only depreciates further. So even if you got all the cash to buy a car, don't buy it with that money... get someone else (read bank) to fund it and you can invest your money elsewhere like MF's or pre-payment of a home loan etc. Moreover, you are only paying an EMI which is a small outflow of your total income... so you might buy a car and spend only about 50K upfront and the rest over a period of time. Consider that you might also get a good hike and increase your source of income over the loan period, the EMI might become easy.

I've seen people trying to take a big home loan and try to get rid of their car loans... I'd rather try and pay up home loans ASAP and make sure I've benefited from the appreciation of my asset and not pay interest to the bank!

7th February 2007, 01:03	#1
nayshak Newbie Join Date: Feb 2007 Location: chennai Posts: 2 Thanked: 0 Times	Go for a loan OR pay upfront? Pros and Cons? Hi, I am pretty new to the car buying stuff. Enlighten me with your valuable suggestion. What are the pros and cons - buying a new car by paying the full amount upfront or leaning towards loan sn
	() Thanks

7th February 2007, 05:23	#2
Rehaan Team-BHP Support Join Date: Feb 2004 Location: Bombay Posts: 24,046 Thanked: 34,076 Times	Check out this section for some complementary advice - http://www.team-bhp.com/forum/buying-car/ cya R
	() Thanks

7th February 2007, 09:21	#3
kalpeshc BHPian Join Date: Dec 2006 Location: Mumbai Posts: 535 Thanked: 137 Times	Dont know much about cars, but economically, paying upfront in this kind of market is always much better.
	() Thanks

7th February 2007, 10:10	#5
navdeep BHPian Join Date: Sep 2006 Location: Pune Posts: 892 Thanked: 4 Times	Its always to have liquidity. Assume you have 5 lakhs as savings and you purchase a car by paying full amount of 4 lakhs. You are left with a lakh only. But if you pay 1 lakhs and rest is financed, you may want some cash available for some emergency. Or invest in housing after a year or so. I hope it makes sense.
	() Thanks

7th February 2007, 11:01	#7
msdivy Senior - BHPian Join Date: Aug 2006 Location: Bangalore Posts: 1,815 Thanked: 2,826 Times	Assume you have 8L. Option 1: Spend all 8L & buy 8L car. After 5 years, you have only the car. Option 2: Pay 1L as downpayment and take 7L loan (max funding) @ rate 10% for 5 years. You will pay 10.8L to bank in 5 years. Invest 7L in mutual fund. Assuming the fund returns 20% every year, in 5 years, you will end up with 14L. So after 5 years, you have car & 3.2L cash. Caveat emptor: The fund should return 20% every year for 5 years. Last edited by msdivy : 7th February 2007 at 11:20.
	(1) Thanks

7th February 2007, 11:02	#8
kkr2k2 Senior - BHPian Join Date: Sep 2006 Location: Melbourne, Hyd Posts: 1,294 Thanked: 66 Times View My Garage	Very interesting and 'economical' thread If a car is a requirement, then go for the EMI. If one is looking at a car as a desirable thing or as a luxury thing, then its better go for single down-payment way. By the way, in the second case to be safe, go for the car which is 25% of your anual income. That is to buy a car of 3 lakhs, your anual income should be 12 lakhs. (or) Something like this, apart from your monthly income, if you happen to get an anual bonus of 3 lakhs you can go for the car. I know people here would be thrashing the hell out of me, after this. But considering the scratches, accidents, ICE, fuel bills, maintenance, depreciation.... there will not be a heart burn if the above said ratio is observed. Note: For detailed costs check this thread: http://www.team-bhp.com/forum/buying...tml#post303394 Businessmen!!, any insights into what I have said?? P.S. That was just my holy opinion. Anyone can differ/agree with it. Last edited by kkr2k2 : 7th February 2007 at 11:04.
	() Thanks

7th February 2007, 22:50	#11
sbasak BHPian Join Date: Nov 2005 Location: CCU-LTN Posts: 608 Thanked: 14 Times	When you take a loan, you pay say x% annual interest. Had you not taken the loan, you can invest the money in some other place with say y% annual interest (return) If x < y then take loan and invest the money in hand elsewhere else if x > y then don't take loan, pay upfront [if you can afford] If you can't afford paying upfront, then there is no choice and you've to take loan anyway.
	() Thanks

11th February 2007, 12:11	#12
cpserrao Newbie Join Date: Jan 2007 Location: mumbai Posts: 19 Thanked: Once	Hmmm...Paying the full amount on your own without taking a loan increases your chance of getting flagged by the IT dept. A friend of mine payed by cheque the entire amount and then received summons from the IT dept to establish where he got the funds from.
	() Thanks

12th February 2007, 06:03	#13
nayshak Newbie Join Date: Feb 2007 Location: chennai Posts: 2 Thanked: 0 Times	Thank you very much for all your valuable suggestion. Can some one throw insight on leasing a car as well. What are the precaution's a NRI has to take before leasing or taking a loan and what are other bargain points to be considered at Dealers location or at Bank. Your vaulable suggestion are much appreciated. Thanks in advance. SN
	() Thanks

12th February 2007, 07:30	#14
squarecut BHPian Join Date: Feb 2007 Location: Jabalpur Posts: 87 Thanked: Once	Avoiding IT department's queries is one main reason why it is better to go for loan, if you are a salaried person and your known source of income may not appear much to the IT department. Of course if you are a business tycoon, you can get away by paying full amount from your own money.
	() Thanks

18th March 2007, 12:13	#15
madhav BHPian Join Date: Aug 2005 Location: Bangalore Posts: 286 Thanked: 73 Times	Put less of your money in a depreciating assent and more in an appreciating asset. If you spend 2 lac on a car and try to sell it in the open market after 2 days it will not fetch you 2 lacs. That simply means your money depreciated by x% in two days. And as the vehicle gets old, it only depreciates further. So even if you got all the cash to buy a car, don't buy it with that money... get someone else (read bank) to fund it and you can invest your money elsewhere like MF's or pre-payment of a home loan etc. Moreover, you are only paying an EMI which is a small outflow of your total income... so you might buy a car and spend only about 50K upfront and the rest over a period of time. Consider that you might also get a good hike and increase your source of income over the loan period, the EMI might become easy. I've seen people trying to take a big home loan and try to get rid of their car loans... I'd rather try and pay up home loans ASAP and make sure I've benefited from the appreciation of my asset and not pay interest to the bank!
	() Thanks