[drsingh]

If you understand finance well, car loans are a no brainer.

In fact, home loans and car loans are the cheapest long term loans you can get. This is a perk for tax paying salaried individuals as well as self employed professionals.

This is an incentive for people to join the formal economy and pay taxes. Tax returns are required to take these loans.

After 3.5 years of hypothecated ownership, I've been offered a cheaper pre sanctioned personal loan from my Bank. Just on the basis of the pre existing car loan. Equivalent to 100% of the loan amount for the car.

The issue arises when people take out a loan they cannot afford over the long term.

[vigneshkumar31]

Voted for Couldn't buy without a loan.

While the forum and the real world is filled with advice in support of not buying depreciating assets on loan, there is some reality check that many of us are jolted into as we save towards the car of our choice.

Business owners have given their ideas of tax benefits, lease options and the like, so let's simplify the talk by focussing only on regular salaried folks - The Month End Mules.

Today's market is brimming with options, or so it seems, but it is so unforgiving in terms of right car for the right price.

Except the entry level segment of 5-6 lakhs, it is often difficult for salaried folk to put up enough money as savings within reasonable time frames to buy their choice outright with cash.

// You look around in the 10-20 lakh segment and you zero in on your choice and start the arduous journey of saving up for your car. You decide on a reasonable exchange price for your well maintained present ride and assure yourself that it would be enough to put down a nice fat downpayment towards the new purchase.* After few years of strict saving and meticulous abstinence bordering on self harm, you have put up a good sum saved against the purchase and check back with your dealer. You scream “I’m ready”!… Only to find that the car you chose (along with the segment that sits in) has sweetly moved north in the price ladder.

What do you do? You didn't sweat out all those years of financial discipline to settle for a lower segment car (which has also moved up to where you are standing now). Your heart won’t let you go in for a loan to make up the difference, because then there's the conflict of fundamental philosophy of saving to avoid loan. You are not a business man who can hope for a good run to find some cash flow suddenly, you are not going to magically bump your salary next quarter. You are the slow and steady bogie. The salary mule.

You can try to beat it by going aggressive and eating a meal lesser, going out lesser and what not, to try to catch the inflation/inflated train, next year. And let's assume your perseverance is rewarded and you finally caught up. Your car of choice inched north even further, but your sheer grit meant that you did catch it finally. Head high ,neck high , squared shoulders, you are ready to throw that hard earned cash on the dealer's desk and drive out your dream ride. You scream “I’m ready, again”!

But there's a tinge of guilt and self doubt. You know how hard you had to work to save all that money. Is that car really worth dumping all in one go? (Don't lie now that you haven't felt this moment of inner introspection) Yes, the very motivation for saving was this car, but hey, now you're many years older and wiser than when you started your saving ritual. So your mind plays tricks on your heart and tries to infuse sanity. But You Are The Enthusiast. You wont let these petty mind tricks work on you.

So you bravely brush it away and go ahead to plonk the money on your dream car. Guess what? In all those years you've been busy skipping lunch and saving up, that car has got a facelift that looks uglier, an engine which is smaller, an interior trim that you can't stand and above all - it has lost that one USP which you oh so loved, because many in the market didn't want it. Sorry Mr Enthusiast, the mainstream market doesn’t agree with you and so the manufacturers deleted the USP in tune with customer demands.
Now you can't bring yourself to buy this Ship of Theseus now. No sir.

You hang your head in disappointment and walk out to see other options in budget, You find that the market today has more cars than ever, but somehow everything looks like a compromise. There are only chinese rip offs and Korean ‘gadgets on wheels’ for you to choose from. The enthusiast in you doesn't quit. You do the one thing you do whenever you find yourself shrouded in doubt, The one thing you have been disciplined about and the one thing you know will work/

You open Team BHP .

And stumble on the beautiful thread written exactly for you - The beauty of preloved cars and lateral upgrades. Wow, epiphany.

Excited about your new A-Ha Moment, you set out to click the link to the closest pre loved market place- Team BHP Classifieds tab, and find your brethren, the Enthusiast clan, pouring their love out for their immaculately maintained rides, in proportion to their asking price. You wonder why some of the ad descriptions sound like someone is giving up their pet for adoption, and asking a steep rate for it. You quickly realise that you are part of this clan and your own valuation of your current ride is guilty of the same love. You decide your clan is not a reasonable place to find bargains, so you set out into the brave world.

You rummage in the dark underbelly of the unorganised second hand market of India.
You find offers too good to be true. Immaculate, low mileage cars going for a price that your financially prudent brain cannot pass up. You are super excited and can't wait to check it out. You accidentally click the next page and stumble on the same car posted from a different city with a different price, but same description. You realise how cute a coincidence that is and plan to suggest the second car for your friend. You click on page 3, only to find the same car again, but from some other B town. You now have to accept defeat.

Then you decide to give up the sham of online classifieds and get your boots on the ground. You ask around FNGs and dealerships for well maintained examples of your elusive choice. Eight gruelling days later, you find a narrow back lane with a fancy pre-owned dealer luring you further into what appears to be the point of no return. There she stands, your elusive car of choice, in the original pre facelift trim. His flashy lights hide the dent behind the rear door and the re painted bumper is parked too close to the wall. Its simply too tight for your expertise to cram into.*

You ask textbook questions to the dealer regarding the history of the car, and he replies ,in text book style. But then the one thing he added casually, makes you brighten up - The previous owner was a Doctor. ! Wow, that's the kind of guy who takes care of his cars with surgical precision.*

*Swallowed by the pride of your achievement in finding the diamond in the rough, you pop the hood and listen to the engine carefully like a doctor examining an ailing heart. (But You have no clue what to listen for though) so you puff out a sigh and close the hood. Thud ! It shuts with that reassuringly satiating thud which you swear is a hallmark of a safe and well built car because you trust your ears more than GNCAP.

You sit for discussions over gourmet biscuits and tea. You bring the best bargaining skills from your Sarojini Market days to the table, and the dealer gives you his 'best price for today only, especially for you my friend'. The number he scribbles looks eerily familiar, it's the same digits of the sticker price of your new car you targeted few years ago. That was the same number you tattooed on your brain and chanted in your sleep as you wriggled with your half filled stomach through your years of saving. *Your eyes fill with tears as you realise you will be paying same price today for the second hand car that you would've paid for same in first hand had you bought it then. Thanks to the steady increase in new car prices, the new baseline average for second hand car of your choice is unbelievably steep. The unorganised cartel means you have no way to verify the fair price . You try to convince yourself thinking at least now that you would be interest free. Then it occurs to you that the residual value of this second hand car is going to eat up a chunk of that interest savings a fair bit when you go for resale as a third hand. Not to mention the opportunity cost of not having that car for these few years.

The dealer shakes you back to reality and says this is the last good example available and you won’t find a better version at this price, that too previously driven by a sedate doctor, probably an anaesthetist, at that. You beg for bargains and the dealer explains his unquestionable rationale behind the increased prices of second hand cars today. That rings a bell. You offer your present ride as an exchange up and he suddenly finds an exception to his 2 minute old rationale. “Discontinued BS4 cars won’t fetch anything sir!”. What? my present ride is discontinued? When did that happen? You play the bargain card again and try to upsell your ride, you show him pictures of your sojourns together and even pull out the black file with every bill and toll receipt ever paid against the car. Bullet proof documentation by the enthusiast. But the dealer isn’t impressed. You whisper the name you have christened your car with and try to explain that its like a well loved pet. Dealer says , “Saar I could’ve done better if you had sold this car just a few years ago (Irritatingly, around the same time when you started saving) Then I would’ve given you a better offer. Now the resale of your particular weird enthusiast’s choice model has plummetted and I can’t help you. I can give you free Ganesha idol if you buy the second hand car from me sir. Divine Blessings are all that I can throw in”. And you probably would need it.

You ponder and think deeply. You are simply unable to sign the dotted line and feel yourself sinking lower to a new low .*You can’t commit.

You get up and leave and turn to the second most trusted source for your advice, next to Team bhp- your wife.*

She patiently wipes away your tears and keeps true to her wedding vows letting you cry on her shoulders. She starts to explain how it is important to get your priorities right in life and six hours later ...

You find yourself*signing the cheque for an overpriced hatch on stilts, in bright sunburst orange, with a notchy AMT, which she will use for 3 km school runs, because lets be clear

-She needs a car more than you do.
-The kids and their needs always come first, and the school runs are more important than you driving around in your flashy unnecessary dream car.
-Your present ride can easily be pushed along a few more years.
-It doesn’t have great resale anyway and so doesn’t make sense selling it now.
-Few more years waiting will mean better cars to choose from.
-The waiting time can be used to save more for a car from a higher segment.

Right? It must be. Because she said so.

So here you are now staring in No mans Land (literally, because the woman got the car),
Standing beside you is your beloved trusted steed, without airbags, without 2 DIN, without fancy cameras all around, hoping that spares are available for the times ahead. And you are tasked with pushing this old timer a few more years, just like yourself.

And don’t even think about taking that orange hatch on stilts for an occasional spin to quench your new car pangs, because there’s a sticker on the rear windshield which says “Queen” with a crown on it.

*

[jagzrk]

Originally Posted by vigneshkumar31

*Your eyes fill with tears as you realise you will be paying same price today for the second hand car that you would've paid for same in first hand had you bought it then. Thanks to the steady increase in new car prices, the new baseline average for second hand car of your choice is unbelievably steep. The unorganised cartel means you have no way to verify the fair price . You try to convince yourself thinking at least now that you would be interest free. Then it occurs to you that the residual value of this second hand car is going to eat up a chunk of that interest savings a fair bit when you go for resale as a third hand. Not to mention the opportunity cost of not having that car for these few years.

This was such a reality for me. I always was led to believe saving is the way. But this is so wrong. You do what is right for "you" if you could afford it and it makes your life worth living.

These are the ex-showroom prices of Ecosport in 2014:
Ambiente 1.5 TDCi M/T – 7.13 lakh
Trend 1.5 TDCi M/T – Rs 8.00 lakh
Titanium 1.5 TDCi M/T – Rs 8.96 lakh
Titanium 1.5 TDCi (Option) – Rs 9.49 lakh

Interest payable over 5 years on 8.00 lac @ 9% = 1,96,000

Source:
https://www.rushlane.com/budget-2014...-12110603.html

And 5 years later, I bought the Trend+ variant for 9.47 lac ex-showroom.

Interest? What interest? Inflation is the king!

[itwasntme]

Originally Posted by vigneshkumar31

...so let's simplify the talk by focussing only on regular salaried folks - The Month End Mules.

One of the most well-written and humorous posts I have read recently on TBHP. Identified with each and every theme .

MEMs rule!

[Altocumulus]

Originally Posted by hridaygandhi

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.

I guess you didn't read the calculations properly. That was irrespective of 80C exemptions. Just simple calculation between interest to get from FD vs what you pay for the car loan.

I clearly mentioned that 80C may not be applicable for many. If it is applicable the gain would be much more.

[SN88]

A personal practice. We usually buy the car outright if the price is between 5-10 lacs as in that much cash we cannot do much by investing. but when it comes to anything above 15, we will use that ready cash for the business or an investment opportunity( mostly privately) and the profit majorly pays for the emi. This has worked out a couple of times and not so much for some other time. But all said and done this may work for mainly cash hungry businesses and a strong luck in investing that cash profitably.

Our Tiguan was bought by the above method 3 years back and purely by luck we came across an awesome investment opportunity. Now 2 more years and the car will be paid for and a major chunk of it by the profits and a lot of money saved touchwood!!

[vigneshkumar31]

Originally Posted by jagzrk

Interest? What interest? Inflation is the king!

My write up above oozed out of personal suffering.

Ive been tracking the Ford Endeavour since its launch, and its gone out of reach today.

Manufacturers adopt many tactics to smoothly push prices up. Fake demand, fake supply shortages, input cost transfer and the list goes on.
The tactics of raising prices with zero factory dispatches and then launching the new model at a 'lower' price has become the norm and one can loose sight of the sleight of hand , if not been tracking changes month on month.

I was saving up to buy the 3.2. The Endeavour offered some sweet spots in its lifecycle timeline, when I should've picked it up. Now it's gone .

The fat margins and the steep price trend of the D2 segment (Endeavour+Fortuner) scares the daylights out of Month End Mules.

[GTsunny]

Originally Posted by vigneshkumar31

Voted for Couldn't buy without a loan.

As I unsuccessfully tried to untangle myself from the roller coaster ride of feelings that your post has evoked, the experiences felt all too familiar and, somewhere my mind wanted to ignore and move on to the next thread, but your post made me pause, ponder and I had to convey.

Your post took me back to what I have felt in recent times, like when your heart hopes for a small dim ray of light at the end of the tunnel, but your mind knows it’s a dark dystopian world so, now I shall take solace in the fact that I do not suffer alone.

Your post deserves its own thread, aptly titled ‘A TeamBHPian dreams’, this can not be the last post of the experiences of us TeamBHPians, you must write more

An ode to my latest crush, the Tata Safari XZA+ black edition with no chrome and black interiors (it will be released for sale soon *fingers crossed* )
https://soundcloud.com/shreysinghalo...social_sharing

My Safari and me may never be together, but still.
..

Mods please delete my post if not appropriate.

[Biker Ram]

Originally Posted by vigneshkumar31

While the forum and the real world is filled with advice in support of not buying depreciating assets on loan, there is some reality check that many of us are jolted into as we save towards the car of our choice.

Brilliant post! Loved it. It's like a sugar coated pill. Behind the humour there is bitter truth that a lot of us can relate to!

[NotanF1driver]

Loan for an amount which is 50% or less than the OTR cost of the car. The reason for me is simple. I can buy a new car with full down payment and can would have a reasonable amount with me as buffer. However, if for some reason, I would need fund for an emergency situation, a bank would only grant me a personal loan, which would have a high interest rate. Hence I would usually go with a car loan and spare some cash with me. This of course comes at a cost, which I am willing to spend.

[varman742]

Voted for 'Loan taken for any other reason'. I am a salaried person and don't have any option of tax benefit, depreciation etc. Also, my views below are from a point of view of someone who doesn't have lots of disposable income which can be easily spent on car purchase.

I got my Safari this month after investing big 26 lacs. I went for 35% down payment and 65% loan. I could have gone for 100% DP however after lot of deliberation and consultation within family, decided to opt for loan. Reasons:

1. If I had used the 100% in DP, it would have been a stretch and could have wiped out all the important savings, FDs and investments which I have made for my future goals (kids educations, travel, retirement etc. etc.). I would have got my car debt free for sure, however I would have been left with minimum capital for these goals. My kids are growing and their educational expenses will rise exponentially in the coming years. Building this capital again would have taken quite a lot of time. Add to that I would been left with little money for rainy days.

2. The current ROI for car loans is relatively low. I got it for 7.6%, almost in the range of home loan interest.

3. Since I funded 65% through loan, I had some flexibility to spend on some accessories and car detailing work.

4. At-least for now, I am able to pay monthly EMIs without much of hassles. I am conscious that we end up paying huge interest to the bank if I have the loan running for full tenure. Thus I have opted for 7 years term which means lowest EMI but with the intention to pre-close as soon as possible.

This gives me an opportunity to save more so that I can build funds to repay my car loan in shorter duration. The loan pre-closure doesn't attract any penalty for me.

Thus I feel that I have best of the both worlds. I have the liquid funds (and possibility of growing them with lower EMIs) at the same time I have the vehicle with me. If no emergency arises in the next 2-3 years and my investments grow, I can pre-close the loan or at-least make part payment. If unfortunately anything happens, then I will need those funds anyways. I may have to continue paying EMIs for some more years. Also, I have taken insurance from the bank which covers for the loan amount, so if anything unfortunate to me, bank will be pay the outstanding loan amount to my nominee.

Originally Posted by GTO

On the other hand, if he had bought a car outright without having any FDs,

applied the same logic. Car is a depreciating asset. In absolute emergency situation, I would rather let go my car with some losses than have the shiny metal with 100% DP in my garage but no liquid funds for basic needs.

[adamkathy23]

My 2 cents:

I had about 20lacs cash & I bought a Tata Harrier, paid about 17 lacs for it. Took a loan of 10 lacs @ 7.7% interest, for 5 years where i will pay about 2.2 lacs as interest.

I put the rest of the money in the share market, Its been 4 months since i have bought the car & i have already made about 5 lacs as profit.

So the Car loan interest is already paid off. Plus i have the capital with me, not to forget the profit i will make over the next 5 years!


Peace.

[Lalitha Venkat]

Leasing options for salaried employees are little unclear after GST introduction. If the leasing company can utilize the input GST against the GST on monthly lease rentals, that would have been the killer deal. But that cant be done is what i understand. IRR charged by leasing companies range from 11% to 13%. The benefits we can get is a tax break on lease rentals, petrol, maintenance bills and insurance. If you are taxed at highest slabs then you can get some advantage and the cost of lease and financing will align or leasing will few bps costlier that financing (1% to 1.5%)
The next option is to take loan and buy which has no deduction for salaried employees.
Buying the car is the best for people who are in business. They can claim (1) GST credit on the car purchase, (2) Claim the interest as deduction from IT (3) Claim all the expenses from driver, maintenance, petrol and any type of expenses and get a 30% deduction.

What can normal people do then. Form a HUF (Hindu Undivided Family) and get all valid registrations done. Invest some funds and start an investing business under the HUF so that you can have some sundry activities in the HUF. Then buy a car under HUF. All your investments can be under HUF and you can save a lot of tax. Please speak to your tax advisor or CA ask him about the benefits of HUF. You can structure a lot of your affairs under HUF. Its a hidden gem. Its a tax planning tool and its got a lot of benefits which you can explore. If you get to know the biggest sinners are those who work for a salary all around the world.

[yd_gli]

Irrespective of whether one is salaried or self employed, the age old adage “cash is king” always remains true especially in a country like India and the economic uncertainties that we will face over the next 5 years. Liquidating ones MFs or savings to buy a car outright is something I have never understood. MFs are an investment on a timescale of decades and a car loan is a few years. Throwing away the compounding of an additional decade to save a few percent over 3-4 years doesn’t add up. Even if one invests in debt funds at ~5% returns and a car loan of 8%, the additional 2-3% is just a tax to have your funds available with you when you want them and at a slightly appreciated value. A car can be sold in an instant and the loan paid off. But the depreciated one time payment will take years to recover.

The only time a loan is bad idea is when you start looking at those 7 year tenures with sketchy banks and bullet payment nonsense. Take a 3 year loan, enjoy the car. One never knows what the future will bring.

Also, for someone like me who gets bored of a car after 4-5 years, a loan is always better since I can’t keep coming up with a justification to dump 25-30L into a car every 5 years. For someone who keeps their car for a decade it probably makes sense.

[hondafanboy]

Originally Posted by V.Narayan

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.

I love this and so true. By looking at your Volvo thread ,you seem to be living these values quite well. I wonder at what age or stage in life does one gathers the wisdom and (the wealth) to understand this and also achieve.

Clearly, it seems it can be achieved without taking loans , but if one can get a loan for the best car or the best address, no harm in taking it as long as the loan is not causing any stress.