[1985Darkkid85]

Can't vote, but preference to buy with a full down payment.
Also , you could supplement the shortfall amount with use of debit or credit card.

Quite surprised , nobody bought up this point in this thread.
While some dealers do levy about 1.5% on card swipes, most give you a leeway for big ticket purpose!

Ramkumar

[pratyaksh]

Having never purchased a car without a loan, this thread is godsend for the amount of wisdom it carries. Inflation vs Loan Interest is the real question here. Also, how deep your pockets are Well that's most important anyway.
Why we have never purchased a car outright is because the business always seems to be in the need of cash, and the loan makes so much more sense when your money could be doing so much more. Be it stocks, or your own investments, surely we can find better use of our money than buying a car outright. The EMIs although stressful for some are a boon for the masses as well as the nouveau riche as this does bring some amount of increased living standards pronto instead of 5 years too late. Also, something like a car that can easily be sold off - pretty much covering your balance EMIs therefore there are no worries ever of defaulting plus as many of you said - at least you have the cash that is earning interest or saved for a rainy day in a non-inflation beating FD (each to his own).

[harryputtar]

In the financial planning world, assets are divided into appreciating assets like a house, or education. And depreciating assets like cars, which lose a good percentage of their value as soon as you drive out of the showroom.

A simple rule of the thumb I personally stick to, is loans taken for appreciating assets are good loans, specially home loan as it also provides you tax benefit.

Loans taken for depreciating assets are a NO NO. What we see in terms of returns vis-a-vis interest rates etc just scratches the surface, there are a lot of other costs involved in these loans as well, and needless to mention a lot more hassle as well.

My personal take would be keep your loan profile simple. Take a home loan for your first house/flat (that you live in), do not think about investing any further in real estate.

The only other good loan is an education loan.

My 2 cents!

[SukhamritR]

I would prefer buying with loan. Works out well for me since I’m salaried and have a steady income stream. Hence I can allocate a percentage of money for EMI’s.

Though many have posted that loan on a depreciating asset is a bad call but I feel if you don’t have the cash ready there is no harm in taking a loan where EMI would be similar to whatever amount one would save up each month. This would help create a healthy credit score as well as ensure that you have the vehicle you need today and not after x months/years.

Also, as already mentioned before my post, car prices tend to increase over time as new features are added and technology develops.

While calculating cost of loan, many have added the interest component which pinches as an additional cost. However, if full amount is not readily available, a person would also spend on other modes of conveyance while saving up for 100% down payment. This cost also adds up to actual cost of ownership.

Lastly, a vehicle on loan is easier to sell in case of need than to scramble for high interest personal loans if all savings have gone into making the down payment.

PS: never cover any payments by using your credit cards unless you intend to pay full amount within the same cycle.

[govigov]

I have voted - 'Couldn't buy without a loan', that being said, I have already started keeping away some money every month in an SIP; so that I can buy the next car outright rather than taking a loan.

[harryputtar]

Originally Posted by govigov

I have voted - 'Couldn't buy without a loan', that being said, I have already started keeping away some money every month in an SIP; so that I can buy the next car outright rather than taking a loan.

Awesome, this brings me back to another cardinal financial principal I follow which most people disagree with me on.

If you do not have the cash upfront to buy that fancy car, or that expensive electronic gadget, maybe you are not ready to buy it. This is exactly what I recommend, decide an amount, decide a timeline, start investing depending on the time horizon.

Invest systematically, redeem systematically, and when you have enough corpus, go for the kill!

[Indian2003]

Originally Posted by harryputtar

Awesome, this brings me back to another cardinal financial principal I follow which most people disagree with me on.

If you do not have the cash upfront to buy that fancy car, or that expensive electronic gadget, maybe you are not ready to buy it. This is exactly what I recommend, decide an amount, decide a timeline, start investing depending on the time horizon.

+1 for that
I took a loan to buy a car in 1977 and before I paid it all, my car was worth less than the loan I was repaying. The interest too kept going up. That was the last time I took a loan to buy a car.
I prefer to save some money so that I can go out and buy a car if I need one. I will never buy a new car.

[Garth]

Voted for full down payment. My current stead Harrier was bought with full down payment.

My two previous cars, SWIFT and Rapid were bought on loan.

It was an aspirational thing for me to be able to have saved enough to have bought a car without a loan. I can assure the peace of mind of having bought a car outright is immense.

[rkw]

My approach is that there is no harm in opting for a loan within one's limit. Even if I had ready liquidity, I would prefer loan for 3 reasons - 1) Invest the cash in easily recoverable investments for emergency. 2) My cash savings will earn interest on total block while I have to pay my loan interest on reducing balance which offsets interst difference to a certain extent. 3) Interest paid on loan can be recovered while selling off car in 3-5 years which means you get to own your car literally interest free while your savings is continuously earning interest during the period.

[ruzbehxyz]

When I was buying my Ford Endeavour, I was getting a good deal where I paid the full amount and did not have the need to take a loan. This was by way of exchange of my old vehicle, 1 lakh exchange bonus from Ford, 1 lakh discount from the dealer and many more. However the deal did not go through and I took a full refund.
Later after a few months, I still wanted to purchase this car. So the only option was to take a car loan mainly because I had to pay another 6 lakhs as the Trend model had stopped and I had to buy the Titanium.

I got a very good deal from a bank which had a tie-up with Ford and the loan interest rate was 7.2% for 5 years. This was good for me.
However after three years when I wanted to repay the load upfront, there was a penalty charge which equates to the amount that I would anyway pay in 5 years. So I decided otherwise and continued my loan. I was totally unaware of the prepayment clause.

[MCR]

Here is an interesting take on the same subject by an American Car reviewer. The point that cannot be ignored --> Opportunity Cost.

https://www.youtube.com/watch?v=LDRlc4EIB2o

[anto1212]

Is it a wise decision to spend 35% of your savings on a car? What's the ideal %?

The internet is filled with advice like it's a bad thing to spend much on a depreciating asset, etc.

Will really appreciate some wise advice on this.

PS: I hate EMIs, so no loans. And the car is a "want" for me, not a "need"!

[vinu_h]

Originally Posted by anto1212

Is it a wise decision to spend 35% of your savings on a car? What's the ideal %?

The internet is filled with advice like it's a bad thing to spend much on a depreciating asset, etc.

Will really appreciate some wise advice on this.

PS: I hate EMIs, so no loans. And the car is a "want" for me, not a "need"!

Look at not just your current avg net salary, corpus, expenses etc but also what these numbers will look like in 2-3 years and then consider using a portion of the surplus on a 'want'. Internet is filled with opinions ONLY.

[avira_tk]

Originally Posted by anto1212

Is it a wise decision to spend 35% of your savings on a car? What's the ideal %?

The internet is filled with advice like it's a bad thing to spend much on a depreciating asset, etc.

Will really appreciate some wise advice on this.

PS: I hate EMIs, so no loans. And the car is a "want" for me, not a "need"!

The percentage depends on how old you are and how the savings are accumulated. Savings from salary would be very different from earning on some form of capital stock. The ideal percentage is what you should pay without pinching your liquidity, very important in uncertain times like this.

The internet is good for checking out guidelines, not for rules. A car is not an asset, it's a tool, personal travel is essential for any kind of business or high paying job, the rule is that the journey should pay for itself ie get something out of it. There are things that cannot be priced, but are prized, arriving at work at your convenience and schedule is one such thing.

Throwing away liquidity because you don't like EMIs is ignoring opportunity cost, a car loses value, pay full cash only if your cash flow is seasonal and varies year on year.

[anto1212]

I went to Skoda Chennai Showroom.

Dealer said If I do the full payment, I might get IT notice regarding the source of funds, etc. He suggested going for a Loan for a smooth process.

Is this true?