[lsjey]

I voted to buy through the full down payment option. I've never been comfortable with a loan. Having seen one of my friends go through humiliation at the hands of loan collectors, I always skip loans.

I usually set up a sinking fund to buy a car. Having a separate sinking fund for such purchases and limiting oneself to the amounts saved is always prudent.

lsjey

[naivedyanm]

Only in exceptional cases go for car loan else wait and make full down payment. In my case, had the opportunity of simple interest due to 'bank employee' and hence doest hurt my pocket apart from considerably lower rate of interest. My earlier one was full down payment though

If you are non-salaried, I mean business owner you anyway will get a depreciating asset advantage in tax apart from emi tax advantage

[whitewing]

Originally Posted by antz.bin

I had a question:
...Now when we did sell those MFs, they now attracted 10-30% LTCG and STCG tax...
...
For salaried folks, all this tax is over and above the tax that they already paid on their salary earnings prior to investing.
...

I agree with the sentiment. The cost of being salaried is also the additional burden we get. Perhaps the govt thinks that there should be a penalty for not being "enterprising" enough .

Originally Posted by antz.bin

P.S.: I am not fundamentally in favour of instant gratification but today I am feeling philosophical about life because tomorrow my society may be declared a Covid containment zone (it fits the criteria) and I am getting the thoughts of the lyrics in the song Kal Ho Na Ho.

Stay safe. Wishing you and your family good health!

[GTO]

Love discussions on such topics

We buy all our cars in company name now for all the tax & depreciation benefits we get. Basically, everything is 30% cheaper, even insurance . The second last car we bought was on loan. But I H-A-T-E EMIs. Like hate them. I closed the loan up within a few months itself. Didn't make financial sense as the initial months are primarily interest (and negligible principal amount), but I didn't care. I detest EMIs and love being EMI-free. Have proudly been EMI free since I think 15 years now (except for the short period of this car's EMIs).

My brother recently got a Superb and as a businessman, he too gets all the usual benefits. The loan rate comes up to just a little over 5%. But I know he too will be closing the loan early.

Originally Posted by hridaygandhi

Scenario 1: Suppose you are the risk-averse type and are investing only via FDs or debt funds and g[/b][/b][/b][/b]enerating returns around 5-6% (post tax) and the car loan interest you are getting is around 7.5% (numbers are arbitrary), it will make sense to make the full payment as you would otherwise pay 7.5% when the returns you are getting are 5-6%.

All is very good in theory and mostly in real life too. But sometimes life gives you body blows. Fixed deposits for most families is the "rainy day" money. If someone had taken a car loan and had fixed deposits, say he lost his job during Covid. He could still live his life due to the FDs, pay off the EMI (and also avail of the RBI enforced moratorium on EMIs) and scrape by until he found another job.

On the other hand, if he had bought a car outright without having any FDs, he'd have a fully paid car parked downstairs but no money to run his house. No one would give him a loan either because he's jobless.

As a very conservative financial thinker, I am still a big believer of FDs.

[kamilharis]

Voted Couldn't buy without a loan.

Got the itch to buy a fresh new car and went with the loan option at the age of 22, now about to finish the 3rd year of 5 year installment plan. Speaking frankly I still don't know how much % of the interest or whatever extra charges were there. The only good thing is, the insurance is covered 100% for the 5 years along with the monthly EMI. I had no idea whatsoever about how much amount is going in the interest and how much is calculated for the insurance. And the loan was taken from a pvt. finance company and not a bank (not eligible then due to some reasons). I had no one to assist!

And in between after the 2nd year, I had plans to close it off but that was when I understood that the principal amount is still there untouched without much depreciation and all I had paid for the last 24 months went to the interest amount, hence dropped the plan, and decided to suffer this till 5th year.

Hopefully, after completing this 5-year burden my next purchase will be a planned and calculated one with full payment. No more EMIs!

NB: Not in India.

[clementw]

As a salaried person buying a car on loan is a bad decision. Have learnt the hard way. It may be easier to save and buy with cash or very small loan. Most importantly never fall for the salesman's words and go for a longer term, the interest payment will be so large with the depreciation of the car by the end of the loan it will be a mill stone around the neck.

Self employed can show the loan and other costs as business expenses and every three years they tend to buy cars. So multiple angles must be checked before going for a decision.

[Raghu M]

Interesting poll. I voted - loan taken for any other reason. I always maintain discipline in matters related to money. I have been working for the last 15 years and do not have one credit card issued on my name yet. I want to keep it that way. I have always been a debit card purchaser. While I started out very humbly, God has been extremely kind and there has been a great improvement in lifestyle. That did not tempt me to purchase anything out of my capacity. My first two cars were bought used. I wrote a check to both the sellers and took delivery of my cars.

With the same discipline, I was shopping for an upgrade which would definitely cost me more than 12 to 13 Ls. I had the funds with me to go and just buy it directly without any loan. In the meanwhile, a dear friend of mine gave me a call and told me about his new real estate venture that he is going to buy and develop. I always ensure to keep at least 10 to 15L at my disposal in case anything goes wrong. While the money would mostly be parked in mutual funds or shares, it would be possible to realize within 3 to 5 working days. With Covid I was really scared that I would need funds in case a dear one or myself get hospitalized. As you all aware many hospitals denied beds simply for the fact that the patients could not make a deposit of 3 to 4 lakhs. I did not want to get into that situation. Long story short, my friend told me to make a visit and if I like I could invest. I drove from Hyd to Kurnoon in Aug 2020 and took a look at the venture. I liked it very much and wanted to invest. Looking at the situation, I wanted to take two plots rather than 1. The problem was, should I buy one plot of land and car directly with money or buy two plots of land and take a loan to buy the car. I chose the latter simply because of the return on money invested in land. I did a simple cost comparison and value appreciation and it was a no brainer. I bought two plots of land but at the same time also needed a car as I have two kids now. I needed a safe and well built car. Took a loan to buy my XUV. The value proposition that I will get in the next 5 years on my land will be at least 5 to 6 times the interest that I pay on my car.

[govindasrani]

I follow 2 principles

- Never borrow money for something that falls in value (ie cars/ bikes)
- Wait till you have the cash and buy it outright

People have told me to invest the money in the market and earn 12-15% v borrowing at 8-9%. What this effectively means is that you have mortgaged your car/ asset to invest in the market. Looked at it this way, doesn't seem like a smart thing to do.

[k10_nag]

My choice is "Take a loan for any other reason".

I believe, one shouldn't take a car-loan due to shortage of funds especially if they are salaried class in private sector.

Buying a car shouldn't come at an opportunity cost. If you have other avenues that provide an ROI higher than car-loan interest, better to choose a loan. This is straight forward.

Even if you don't have any other avenues, better to take an over-draft loan and park few months' worth of EMI in over-draft account. These loans come at slightly higher rates but provide best of both worlds. You will have the much needed liquidity while you don't need to lose sleep of missing an EMI in case of unforeseen professional hiccups.

[ShivWason17]

As a public sector banker things are pretty different for me.

My first car purchase after an year of joining the bank was not on loan, I paid the full amount straight up as I had some money saved up.

Last year when I was in the market again for a new car, I went for the staff conveyance loan. At just 6% simple Interest, it was the cheapest option for me. I invested the money saved for higher returns. Heck, even a simple bank FDR pays me more than this as I get the staff benefit plus it helps maintain the liquidity of funds.

GTO rightly said in his post, in the starting few months only the interest gets adjusted and you can hardly see any reduction of the loan amount. But this is not the case with us, full loan amount gets adjusted first and then interest is adjusted

In all, it makes sense for people like me to purchase a car on loan.

[QuadraticAmoeba]

Except my house, all the big-ticket purchases in my life (including 3 cars I have owned so far) have followed what I call as "reverse EMI". I save up for the amount needed and then buy it outright. This way, I don't have any loans/EMI - I simply don't like the idea of having a loan/EMI hanging over my neck.

Even for my home loan, I pre-paid as much as possible and closed it in 7 years. A friendly bank manager told me that many, if not most, middle class folks in India like to close their home loans early. It may not make financial sense, but it makes me breathe easier.

Of course, the other benefit of "reverse EMI" is that you live within your means and don't spend more than you can afford.

[motorotor]

If taking a company car/ bike it makes sense to go for a loan since there is a saving of about 30% + depreciation. With car loans at 8-9%, it makes sense instead of putting down 100% payment upfront (which could potentially be earning you more money if invested elsewhere).

On the personal front, I would not take loans for depreciating assets like cars and bikes.

[Apex1815]

In my opinion the best car to own is a "Loan Free Car".

In case if it is unavoidable, go for a Car Loan.
Just for an upgrade I would never prefer to go for a Loan. Its better to wait and save.

I had purchased my current car on 5 yrs loan but every month EMI deduction message made me feel burdened so I closed my Car Loan within 8 months of buying car.

[batladanny]

Recently bought a second-hand car and made no sense to get a loan for that considering the interest rates for used car loans. But a reason (that isn't yet mentioned) to consider a small loan is that you can build up your credit score. Would help get better rates down the road for your larger purchases.

Coming to my case, while I could've paid upfront, ended up taking a zero-interest "loan" from my mom primarily coz she wanted to be a part of my first car purchase. Am now giving her EMI. Gotta admit, even paying EMI to my mom has made me understand how much of a burden liabilities feel like.

[kimmig]

If you have the full money upfront, have you considered
1. Opening an FD
2. Taking an Overdraft on the FD .. you get about 80% of it at 2% over the FD rate.

So you effective Finance rate is 2% plus the Income Tax you pay on the FD rate, at 6% FD rate and 30% IT slab, that works out to about 2%. Your effective rate of financing is 4%

Then pay off the OD like an EMI over whatever period you want.

No processing fees, no penalties for foreclosure, no risk. You retain the FD and gain benefit of managing the cashflow as you want.

any pros / cons with the above approach?