[V.Narayan]

It is a case of different strokes for different folks. What may work for one may not for another. There must be several of us who can only buy with a loan and that is fine so long as we don't over extend ourselves on the loan size we take on.

For me personally EMIs and loans for consumption are a strict no-no be it cars or holidays or gadgets. Buy what I can afford comfortably. So car loans are taboo. The only personal loans I ever took {when I was younger and relatively less well-off} were to buy the houses I stayed in.

Some in my social circles state they take loans at say 10% because the money saved earns them 18% on the Bombay Stock Exchange. I am reasonably astute money wise {or so I think} but I can't figure out how one manages such fine balancing of cash flows and perfect discipline of timing investments. But I'm sure some do manage it.

But within my resources where the home I live in and the car I drive go I try to reach for the best. I believe your address and the car you drive both make a statement in our material driven world.

[.HEM]

I couldn't buy my car without a loan in 2013. After I became an Entrepreneur in 2015, the depreciation and interest on loan was tax saving for me. I took a 7 year loan but pre-closed it in 5 years. Of all the loan I took for starting my business, The car loan had cheaper interest rate, so I held on to it before I closed other loans

For my used car purchases, I preferred buying it outright with cash or pledging my FD/RD, so that it can be closed in few months.

[ash22]

Let it be a car loan or full cash payment,
Let it be a New car or Used car,
Let it be for salaried employee or Business people,
A car is a depreciating asset and we cannot save money on car purchase even if it helps in IT.

With this COVID lessons, Living a simple and stable life is much needed than getting a car out our capability.
I prefer, we can go for a car loan if we have covered the below points,

1. 5 lakhs for child education (Married with a kid)
2. Medicalaim for 20 Lakhs for family members.
3. 6 to 10 lakhs in FD (Let it be a dead investment, as GTO said, The satisfaction of liquidation is huge)
3. No home loan or Home loan with minimum pending principle.
4. No other personal loan/credit card EMI.

[GRAND23]

It all starts where you are in the life. Are you in between 25-30's or 35+ or 45+? The reason being at each age group there are some commitments and several plans.

In my case, I owned my first car in 2013 (after my marriage) and went with loan. I simply couldn't make full payment due to certain other commitments such as construction of house. At the same point of time, I didn't want to kill my wish of owning one. Although I managed to close the car loan in 2 years, EMI free is something I consider seriously.

To keep my financials in control and also ensuring my personal goals achieved, I switched to used-cars market in 2018. Now, I own used Duster which is EMI free. I am already making some small savings so that I can update Duster to used Seltos (Diesel, TC) in next 5 years. If I am able to save more, I can consider upper segment cars such as used XUV's or MG's or TATA Harrier. In next 5 years, plenty of these cars will be available in used car market and again EMI free.

Note: The above approach suits more to single earner in family (like me) and if there is dual engine (both wife and husband works) then you can take risk of loan and close it early as possible.

[GeeTee TSI]

Voted for a car loan

My concern is that while one can liquidate some funds for upfront purchase, the period closest to the purchase is the most vulnerable with minimal spare funds. How does one tackle a sudden outflow of the kind for which one doesn't get a loan? Notwithstanding the interest cost of the loan, it is this risk which makes me skeptical of outright purchase

Further, the marginal increase in the emi one can afford to acquire a dream is also a double edged sword, a dilemma which plays on one's mind

[pratika]

Pretty subjective question based on individual mindset as well as state of economy.

In the past I would've said no loans on depreciating assets, and I have walked the talk for my past car purchases. However, in today's time when interest rates are so low and banks offering schemes to provide lower ROI if you've existing home loan with them makes it a worthwhile proposition - even for salaried people.

Having said this, according to me loans are only a substitute to avoid redeeming one's existing investments. Taking a car loan without sufficient savings to cover the entire loan should be avoided, unless the car is a need than want.

[sgmuser]

I am an NRI but I do own cars back home for my parents. I have some FDs and savings via MFs etc., but I always go for EMIs. I am usually disciplined and pay them properly. I too have housing loan which I am continuing and NOT pre closing them due to IT. One of the previous housing loan I pre closed in two years, as I was not in IT net then and pure NRI. But, now I have some incomes back home, it makes sense to continue the loan. With nationalised banks, paying lump sum once in a while does not create much problem like in private ones. So, always go for a nationalised bank for loans.

My banking mantra is to go for private banks for Banking Services (bills/account management/transfers/credit cards etc) and nationalised banks for loans/FDs. I never deal with LIC for any of my requirements like loans or policies. I put my money on Tatas blind folded, but their loans are not that easy to get approved also.

As for as car loans, I usually, do not pre close and I use that money to invest in MFs anyway, which, if properly done, easily gives more than 15% p.a. Some good ones returns around 20% for me, so, I am not bothered too much.

My suggestion is to take car loan with nationalised banks like SBI (I never use them for my FDs/savings, strictly only for my loans), as these banks usually create less problems for pre closure in case if required. I suggest it is not a bad thing to do to via EMI route. Make sensible decisions, own a nice car, enjoy the drives with the family and the joy, confidence/self esteem it brings in.

Good cars come with added safety as well. Cars are necessity anyway and they are part of our life and helps to meet our goals. Having a reasonably good (you should know by now, your limit), even it is a bit costlier by 20% is not a bad thing. It also pushes you harder to work and save, indirectly. The same applies for Housing loan as well, for me. The difference between these two, one looses value over a period but, you get your value if you plan accordingly. Btw, life is like that, you need to loose some to get some.

[k2j2]

My vote goes to the 'taking a car loan' option. Specially in current financial markets. The car loans are at their lifetime low (even the home loans also) and most of the salaried person with a good credit history nowadays get a pre-approved loan on their bank accounts which they can directly check through the net banking.
If all thumb rules before taking a loan are checked and you are good to go with either down payment or loan option, better choose the loan route, why?
1. The biggest differentiator is the fact that car loans are 'reducing interest rate' type loans wherein your EMI will be fixed but only calculated on the remaining principal amount for that particular month. However, if you invest that lumpsum amount or spread similar corpus as systematic investment the returns would be calculated on a 'compounding interest' basis. so your overall interest on the invested amount would be more than the actual ROI.
2. Pre-closure, pre-payment comes almost with no charges with most of the PSBs or some Pvt banks as well.
3. Nowadays, one can get hassle free loan-processing and minimal documentation to get their loan approved.

I got a car loan recently at 7.65% ROI with a private bank for 3 years. Although I had the cash in hand to pay down at once but i will put that money in 2-3 financial instruments and measure my returns exactly for 3 years :-)

[headbanger]

I don't feel that a loan is a bad thing necessarily. As long as one understands the loan repayment, loan does help to cater to requirements. However if the loan creates a mirage that pushes someone to spend exorbitantly, that surely is a very bad financial decision.

I know of someone in the family who purchased a car with OTR of 30x his monthly salary with the help of a loan and that's super bad decision financially.

I firmly believe that a lot of these decisions boil down to the extent of financial literacy or rather illiteracy prevalent in our societies.

[pradeep_mvpa]

Replaced my father's 14 year old Alto with an Altroz last week. We had initially thought of going for loan. But eventually father, I and my wife decided to contribute from our savings. Along with Alto's exchange money we managed to create sufficient funds for a direct purchase.

Pros:
1. Avoided loan processing cost even though it is small
2. Avoided hassles of hypothecation removal in future
3. Less turn around time in purchase
4. Mental satisfaction of having a loan free car

Cons:
1. With loan, could have gone for a higher model. But since the car will be primarily used by father, less gizmos is actually a blessing (bought the XM Petrol FYI).
2. Lost the financial backup for any immediate unforeseen need. Need to control spends for few months to build it again.

End of the day, it is the bank that benefits more than us from a loan!

[vikram31]

I have a simple rule for taking loans:

Will the deployment of borrowed money yield more than the interest cost?

The above can never be true for cars. The only reason to take loans for me would be probably for property etc as I get some tax benefit and also the asset could appreciate multifold over say a 10-20 year period

Loans also make us move out of our price range more often than not. I believe cars should be bought according to cash in bank and if you aspire for a bigger outlay save more and delay purchase

I think it is also prudent to juice out the full utility of your existing car by keeping it for 8-10 years for the following reasons:

A. Cheaper insurance compared to a new car
B. Zero dep now available for upto 10 years
C. Lesser heartache for Nicks and Scratches that are commonplace in city driving

It's very tempting to jump on to the newest tech and powerful engine upgrades but if one just sits back and thinks why they fell in love with their car the first time, they May get motivated to stick on for longer

Another thing I usually do for an ageing car is to keep adding small upgrades like newer better tyres, new alloys, upgraded ice that gives me something new to look forward to and delays my depreciating purchase over the next few years..

Sorry for the gyaan on delaying purchases but I thought it could be relevant to some of us

Best..

[the_joker]

I'm a salaried person, so I don't have any tax relied due to car loans. So, I prefer to wait for a few years and save for a full payment. I also try to be frugal and financially savvy, so I can say that the car is after emergency funds, insurance, investments etc. I put money in a medium term investment (5- years), and then use that for buying car. My belief is that I should cut "wants" and use that money here, not use money from investments for other purposes.

[Neversaygbye]

Have always bought my cars with the help of loans simply because I never had the kind of money required to make an outright purchase. However, I did try to put up as much money upfront as I could, so that the loan component was less. I also prepaid my loans as soon as I could since there was no tax benefit to taking a loan (since I'm a salaried person).

[justwheels]

Well we all would want to be on the right side of financial difficulties and plan to the T for everything we do. Unfortunately not all are able to do that. I feel loans, if used judiciously can be a boon and help you acquire stuff that you want (not need because that's a different discussion, I mean all you need is a Nano or Alto as a city car ever)

The issue is, what percentage of your monthly salary have you locked up in emi's. And are you spending first and then saving or spending after saving on a monthly basis.

As someone mentioned, using up liquid cash can be dangerous for the initial days of the acquisition. With loan, yes on a rainy day, worst case you can sell off the car and loose only the depreciation amount, while if liquid cash is needed in the immediate years, you might end up borrowing at a higher interest rate.

So if you can keep a balance between cash and loan, it can just be ok. But again, this is just my thought and can be very different from person to person.

But I do have 1 question. If you have taken a loan on a car for say 5 years, what can be the best time to foreclose? If I wait longer, I would have paid most of the interest anyways, so should I foreclose within 2 years or so?

[AutoConsultant]

My wife and I were planning to buy a car by mid-2021 and were saving up accordingly. The initial plan was of making 100% down payment only. However, the following reasons made me finance 40% of total cost via a loan :

Liquidity : I felt it is better to have some excess liquid cash at your disposal especially in these uncertain times

Low interest rate : got a loan from HDFC at 7.6%. I felt I could get more returns if I invest the same money in Large cap stocks or mutual funds (which are still liquid in some sense as compared to putting it in buying the car)

Expected increase in car prices : I had finalized the car, buying it in mid-2021 would have meant I end up paying at least 5% more due to the expected increase in car prices

I think loan is a cultural thing as well - I have seen my father take loans throughout his life and hence am comfortable with it. On the other hand, my wife's family had never taken loans so she is always scared of them

In conclusion I would say that you should always have sufficient funds when you are planning such a purchase (apart from home loans) and then base your loan decision on which option makes more financial sense for you.