[M00M]

So voted for paying full downpayment. The current entire garage is loan free and that actually helps with not having any monkey on my back every month to make emi payments which also affects credit rating etc.

Yes you do loose considerable savings when you pay full downpayment but also you never over extend yourself and also you never have a monkey on your back every month. Also before i bought my last car i ended up doing a lot of loan calculations so please let me elaborate.

Considering a simple emi loan if you take the loan for a period of 7 years you almost end up paying 5-7 lacs as interest payments. If you go fancy loans like BMW financial loans or Agility schemes where every 3 years or something you get to give the car back you end up spending almost 1 lac per month (cost of limited downpayment + emi) for all the months you own the car.

So since last 5 years ive made a conscious decision to buy a car only on full downpayment or no car. And i have fluctuating income as i am self employed, if that helps anyone.

[jithin23]

I always thought that paying full cash for a car would raise attention to IT authorities and we'll be questioned on the source of income. That too some cars cost 20L+ and paying so much by outright cash is a challenge. So I used to think taking a loan is a better option. I'm open to suggestions and please correct me if I'm wrong

Haven't voted because I want some clarity on this context

[Arun_S]

Couldn't buy without a loan. But not a 80-90% loan but more like 40-50% of the car value in loan.

My thinking is than buying car a segment lower and then changing it within 3-4 years. It would be better to take a loan buy one which you are happy with and use it for 8-9 years.

[jetsetgo08]

Although I would want to vote for full down-payment, it may not be the right choice any more, more so for the vehicles costing above 10L.

And I would consider buying vehicles costing above 20L with full cash as not a wise decision, it is an (re)investment opportunity lost. The same amount invested in real estate or markets will yield much higher returns than the interest paid to the bank over a 5-8 year period.

However, if it's beyond 20L, I may blindly go for a Innova or Fortuner as it will save us from the depreciation.

[vinuchel]

From the bankers' point of view , the interest paid on Rs.1 lac is roughly around 30,000 (for a car loan of Rs.1 lac @ 7.55% for 7 years). So end of the day roughly 30% of the loan amount goes towards interest alone.
I have purchased my first car through loan, regardless of having the full cash available. Thought of not touching the savings.
Other options (in case of finance would be to take a loan against bank deposit , if available (loan rate just 1% above interest rate of FD, and gold loan. Both these would also have the advantage of yearly payment/servicing of interest only and also non hypothecation of vehicle to bank)

[vinu_h]

My 1st two cars were outright, current one on loan. Lender offered 7.1% on a depreciating asset and did all the running around for me. Made sense. Interest rates, in general, are low today. Home loans at 6.65% etc. Good time to take out a loan.

All of this sounds good & sweet on the face of it. The real test starts when you face ups/downs; which is why I've put away enough to sustain my expenses for 12 months.

[Raghu M]

Originally Posted by 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.

That's a fantastic approach. Like all believe spend first and then save next. For people saving to buy a big ticket item, the mantra is always - save first and then spend what is left.

[vishwasvr]

Having burnt my hand once with a vehicle loan, I realised that delayed gratification is something that is grossly ignored. When I looked at the larger picture, loans are extremely bad for a person's financials. Speaking in general, it feels like we are ultimately working for banks. And for this reason, I decided to save up for my next bike (Ducati MTS 1260s) and managed to buy it in 3 years.

I don't see how taking a loan and paying that extra few lakhs help. Even the lowest rate of interest will be a few lakhs. Why spend that extra money when you can delay the purchase no matter how tempting the offer is. Unless, there is a super urgent need for a vehicle, I don't see the point in taking up a car (or bike) on loan.

I never felt this strange feeling when I paid upfront for the bike. I felt like I deserved it and I felt happy that my efforts paid off.

[QuadraticAmoeba]

Originally Posted by jithin23

I always thought that paying full cash for a car would raise attention to IT authorities and we'll be questioned on the source of income. That too some cars cost 20L+ and paying so much by outright cash is a challenge. So I used to think taking a loan is a better option. I'm open to suggestions and please correct me if I'm wrong.

If you regularly file IT returns and show correct income, you should have no problems with the IT authorities. Note that in Karnataka atleast, you will be charged some TCS (Tax Collected at Source) and it will reflect in your Form 26AS. It will get offset against your tax payable.

If you have no/disproportionately low income (as per your IT return) versus the amounts spent on the car, then you may be in trouble.

[binand]

Originally Posted by QuadraticAmoeba

Note that in Karnataka atleast, you will be charged some TCS (Tax Collected at Source) and it will reflect in your Form 26AS.

TCS is nationwide.

Originally Posted by QuadraticAmoeba

If you have no/disproportionately low income (as per your IT return) versus the amounts spent on the car, then you may be in trouble.

Also worth mentioning is that if this is the case, then it doesn't matter you bought the vehicle with financing or outright purchase.

[BLACNWYTE]

Voted for 'Couldn't buy without a loan'.

Read the entire thread (almost) and came to the conclusion that, to each his own. I was torn between selecting Couldn't purchase without a loan or loan taken for any other reason, but finally decided on the former.

Initially while purchasing our first car, I was thinking about financing about 25% of the OTR cost and remaining payment from my savings going for a B segment hatch. However, my spouse who is employed in a PSU bank has an awesome vehicle loan scheme for staff, where the ROI is 6% simple interest spread over a tenure of 180 months! That is essentially the lifetime of the car.

In the repayment plan, the principle amount is deducted for the first 120 months and then the interest for the next 60 months. You can pre pay the principle amount any time and the interest component will be reduced accordingly. We essentially got a C2 segment pseudo SUV at the monthly EMI of a A2-B1 segment car. This was in 2017 and about 4 years down the line, the EMI pinch is getting softer and softer and I can pre pay the principle anytime and save on the interest to be paid too. (I guess this has been mentioned by couple of other members here)

I am a vehement supporter of investing in MFs and SIPs and in that regard I maintain a portfolio of debt- investments- liquidity in a healthy manner. I'm a middle class person and I'm used to (read need) loans even if I don't want them. However, even when I have had the funds for outright purchase, I've taken the debt route and invested the savings. Gods and the market has been kind to me as I've managed to stay in the black with those calls and every time I say, not the next time. The only time I've successfully managed the urge to invest the savings and finance the vehicle was the time I purchased a Dominar 400 for my brother.

As for my next car, I've started saving towards for some time now, but in all probability that will be about 10 years from now and I hope I can own an EMI free car from day 1 at that time.

[Nitish.arnold]

Originally Posted by vikram31

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

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.

These are exactly the reasons I am holding onto my now EMI free car.
Yes Mate, I also keep adding these upgrades (both visual & functional) to keep delaying the new car itch.

Slightly OT:
I don't think there is anything in the market in the same price range that can cater to my needs better than my current car,
Harrier comes close but 20+ lacs is a lot of money at my age right now.
My Nissan Terrano 85 ps has dual airbags (single driven 90% of the time)
Servicing cost is 4-5k per 10k km (amazing FNG here in NCR)
Gives me a mileage of 25+ kmpl (90% highway driven)
Almost all enticing gizmos in newer cars have been added to my beast, like (Leather interiors, android auto, Mood lightning, dual horns, lightbars, all LED setup inside & outside, earthquake inducing sound system, cameras, sensors, & what not)

[Altocumulus]

Originally Posted by hridaygandhi

Scenario 1: Suppose you are the risk-averse type and are investing only via FDs or debt funds and generating 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%.

Even for this scenario it makes sense to take a loan. Car loan is reducing interest and FD is compound interest.

For example: For a 10L loan at 7.5% total payment including interest is 12,02,277 (effective simple interest 4.04%).
Same amount in FD at 6% for 5 years (tax saver option) , you will get back 13,46,855 tax free.
So all in all a gain of Rs 1,44,578 if you take a loan instead of paying upfront. Plus you have the 10L in your account, you can see it there as a part of your portfolio.
If you put the same in Mutual funds, gains may tend to be much higher and the lock in is also for 3 years for tax saver ones. Not going into the calculations for savings via 80C because it may not be applicable for many people.

[PrasannaDhana]

Anyone who is interested in this discussion must watch YouTube videos on car purchases and payments by Dave Ramsey.

It has been amazingly useful to me.

[hridaygandhi]

Originally Posted by GTO

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.

Totally agreed. My line of reasoning is based on the assumption that this is not the only surplus money the person has, and has already stashed away some for the rainy day. It would be a bad idea to go and get a car with all the money a person has, but we have an entirely separate thread for how much a person should spend after a car.

Originally Posted by GTO

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

I second that. Never put all your eggs in one basket, and one should definitely have a secure investment in debt and other instruments as that is the only thing which comes in handy in case of an emergency. The basis on comparison is with respect to where the person is planning to put this surplus amount if not in a car.
When the markets are down and the principal gets washed away, even the poor FD interest rates seem dear.

Originally Posted by Gansan

I understand if one buys an EV through loan, he can offset the interest paid on loan while filing IT returns.

Sorry sir, I am not aware what happens in case of an EV, will definitely check.

Originally Posted by Gansan

In my book, a car is not an asset, unless it is a very high end, top of the line luxury car or some classic. If one has the money, a car should be bought outright, unless he can employ the funds to earn higher returns than what he pays as interest towards the car loan. Towards this end, one should even delay his gratification. Put appropriate amount in an RD for a couple or three years, mobilize some more savings and then buy the car.

Totally second your opinion. Despite being self employed and falling under the 30% tax bracket, everyone in my family believes in staying debt-free, for sheer peace of mind it offers. It is contrary to the fact (and to my earlier post) that taking a loan would make more financial sense. The last loan we took was for Honda Jazz in 2011 for 5 lakhs from a nationalised bank. The car cost us 8L, paid 3L in down payment and in the subsequent three months, paid 1L, 2L and 2L respectively and paid off the loan in 3 months. The loan was taken from a nationalised bank so that there are no fixed EMIs, and it was only taken to spread out the payments a little for convenience. We believe in buying only that car which can be bought upfront. For the BMW X1 we bought next, we paid the entire sum upfront.

Originally Posted by Altocumulus

Even for this scenario it makes sense to take a loan. Car loan is reducing interest and FD is compound interest.

For example: For a 10L loan at 7.5% total payment including interest is 12,02,277 (effective simple interest 4.04%).
Same amount in FD at 6% for 5 years (tax saver option) , you will get back 13,46,855 tax free.
So all in all a gain of Rs 1,44,578 if you take a loan instead of paying upfront. Plus you have the 10L in your account, you can see it there as a part of your portfolio.
If you put the same in Mutual funds, gains may tend to be much higher and the lock in is also for 3 years for tax saver ones. Not going into the calculations for savings via 80C because it may not be applicable for many people.

Here, you are assuming that it is the only investment the person is making, and that the person has not exhausted the 80C limit already. In my opinion, it is not a good idea to get a car if there are no other investments anyway. It is understandable during one's initial stage of career when it may not be possible to get a car without a loan, and in that case your argument does make sense.