[thoma]

How many of us have gone the full down-payment route. What are the IT implications of doing so? Would like to know the percentage of people opting for loan just for the sake of avoiding any IT questions.

[SoumenD]

Voted for Couldn't buy without a loan. And that was a mistake which I realized later.

Being a salaried person with TDS, IT department issues is out of question for me. Due to the typical itch of owning a new car(older one was 8+ year old and manual) & lack of enough funds went with a 5-year loan in early 2019. But thanks to the new found sanity towards financial discipline(a few threads on this forum helped as well), I realized how much money I end up paying the bank as interest uselessly, which could have been easily avoided had I been a little more patient. So started making part-payments every quarter & closed the loan in 1.5 years flat. Had made sure I took the SBI loan which had no part-payment/pre-closure charges. At the end had to pay some 600INR as closure charges. Its a relief to be debt-free

Henceforth will never buy an automobile on loan be it bike or car.

Car Loan makes sense for people if you are going for car lease(from office) or buying it for business. In that case you get good tax benefit. But for personal use where you dont have those two scenarios, I feel its best to go without loan. Ofcourse if its an urgent need and you don't have enough funds going for loan is unavoidable, but should be the last option.

[hridaygandhi]

There are two things (financially) that you need to look at while buying a car:

1. Rate of interest vs opportunity cost: With dwindling interest rates, you have to see if you can generate more returns than the car loan interest rate being offered to you.

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%.

Scenario 2: In case you are investing in assets which give a higher rate of return (equity, although more risky) and are getting around 10%, it will make sense to take the loan and only make the down payment and fund the balance via a loan as you are getting money at 7.5% but your return on investments are generating 10%.

2. IT angle: If you are a salaried employee, the interest you pay on the loan will not get deducted from your gross income, and you will be facing the full brunt of the interest outlay of 7.5%. However, if you are self-employed who falls under the 30% income tax bracket, and are purchasing the car under business expense, you get to claim the interest as business expense, bringing down your taxable income and effective interest rate to 5.25% (30% deducted from 7.5%). In this case, it may be wiser to take a loan instead.

Trivia:
1. Depreciation benefit is not considered here as it will remain the same irrespective of how you pay for the car.
2. It may aid your CIBIL score to have a loan on your books and make timely payments, helping you when you want to take another loan in the future, with respect to home or business etc.
3. While private banks have fixed EMIs, nationalised banks let you make repayments as per your convenience and charge interest on the outstanding balance.

[Mr.Boss]

Originally Posted by thoma

Would like to know the percentage of people opting for loan just for the sake of avoiding any IT questions.

Means the enough liquid fund was available but still someone took loan just to escape from IT radar? How do we expect them to confess here?

By any chance are you from IT or CBI trying to achieve your year end target?

There are multiple reasons for someone to take a loan other than the above one. Say for example, sometimes we get Auto loan with interest as low as 6%. In such cases someone wise will take the loan and invest the excess fund which gives a better returns.

[libranof1987]

A couple of related threads:

https://www.team-bhp.com/forum/india...at-salary.html (What Car @ What Salary ?)

https://www.team-bhp.com/forum/india...ing-car-6.html (Financial thumb rules to follow when buying a car)

[jkrishnakj]

IT or not, I prefer to keep very minimal loans.

My preferred model is to keep aside money for a car, get an FD when it accumulates and take a loan against my own FD. That way, I feel more at ease in my head.

Besides, the hassles of clearing a loan was hard. Been through it once. Per terms, I couldn’t pre-pay inside 36 months or a penalty kicked in. The dealer puts a guy who visits you several times when you want a loan, but to clear it, I found the bank at the different end of a city and it doesn’t get closed without visiting at least twice. And then, you have to visit the RTO to remove the Lein on the RC.

Just to avoid all these, I almost always prefer not going for a loan.

[hrman]

I have changed my Loan behavior while accumulating more experience (Work wise and age making me more sane).
My starting pattern was to replace the car in 2-3 years. The funding was partly the old car sale value and loan for the balance.
When I purchased my current car in 2012, I funded it in 40-40-20 ratio. 40% old car, 40% loan and 20% Own fund. The loan I took was consciously for 1 year which I repaid.
Now in case i decide to buy a new car, my strategy will be:
(a)Wait
(b) Save
(c) Buy outright.

If a Loan is needed, the tenure should be of one year. If this is not possible, go to point (a), (b) and (c) again.

[Eddy]

I take a loan if the ROI is less than 8-9%. The same money can be used to get higher returns in the market. But it needs discipline to invest that amount regularly rather than simply spending it without thought.

There is another category - leasing. A lot of information on this is available on the forum. Look around

[Shreyans_Jain]

When I am buying on my company’s name, it is always on loan. I can use the money to get better returns vs the interest paid, and the EMI amount goes into company expenses.

If I am buying in a personal name, it will always be against full payment, with that payment coming for the maturing of some investment. Using money which can otherwise be invested for returns to buy a depreciating asset is plain stupidity. Spend wisely, folks.

[Reinhard]

I took loan for the previous car because needed one on priority and didn't want to compromise on safety/comfort/fun/power - anything.

However with that sorted - I made up my mind immediately after - that going forward I'll never buy a car with a loan. I'd buy one only when I could save enough and buy one without loan. Wait till the savings are enough was the goal. And thankfully for both current cars - I managed to achieve it. Especially for a regular Joe salaried employee like me - it doesn't have any benefits to have a loan - other than getting money that one doesn't have at the moment. For the 1st car - it makes sense since the need and eagerness to get hands on a wheel are much more. Afterwards - one can wait in most cases and then upgrade / swap when there is sufficient surplus money.

Not taking loan as a rule - basically gives an automatic reality check of what my worth really is. In today's world of too many uncertainties - I'm taking an effort to reduce liabilities as much as possible. And a car loan would surely top the list of such items to cut out.

[whitewing]

Being a salaried person, have bought only on full down payment since it did not make sense to take loan on a depreciating asset and the emotional baggage of having liabilities. Saved up the amount a few months ahead of the purchase.

[hareshjethwani]

Depends on how much money you have to spare. For businesses(depreciation) it makes sense specially with such low intrest rates be it car or a home loan. If you have better options to invest your money into business,etc, as well go ahead with the loan.

[binand]

I have done all three, though voted "Loan taken for any other reason" for the most recent one.

The first car was "Full down-payment". I had just returned from a longish-stint outside India and didn't have any of the local finance track record that was considered mandatory for a loan. I had the money available and was in a hurry to get the car, so just paid it out of pocket (from call to showroom to car delivery it took about 5 days).

The remaining three have been on loan - two of which I pre-paid before the tenure was over. One was "Couldn't buy without a loan" (expensive car). In the other two cases, it was "Loan taken for any other reason", which is that I had other commitments coming up and didn't want to spend a lumpsum on a car, instead preferring to spread the payment over several months.

So the big positive of loan is that you don't have to dig into your savings; keeping that aside for whatever emergency or life goal (an apartment, perhaps?). There are also minor pluses like discount on insurance etc.

The downsides are many though.

1. You have to suffer cashflow pressure for several months/years.
2. Loan pre-payment agreements are massively lopsided. Do read the conditions[*].
3. Additional paperwork at the time of purchase and also at the time of loan end.
4. The "Advance EMI" is a scam.
5. Spam spam spam.

[*] One loan I pre-paid (via cheque) on the 5th of a month whereas the EMI deduction was scheduled on the 7th. HDFC decreed that even though the cheque cleared after the 7th, for their accounting purposes I closed the loan on 5th, which was BEFORE my 12th EMI due on 7th, and therefore "penalty for pre-paying within the first year" will apply. I was furious but helpless.

[JoshMachine]

Have done both - paid upfront for one car and have taken a loan for other, which is prepaid now.
In general, philosophy would be to minimise the liability to the minimal extent (<=25-30%) of the on road price. Rest to be managed through previous car resale + investment done for the purchase.

[antz.bin]

I had a question:

If we are saving for the car purchase in a Mutual Fund SIP for say 5 years. We have enough funds to buy it outright, so we sell the mutual funds and buy the car.

All good till now, right?

Now when we did sell those MFs, they now attracted 10-30% LTCG and STCG tax. Shouldn't that be added to the cost of outright purchase? Just like the loan folks are calculating the interest cost? But in case of a loan, you can sell off your MFs in a FIFO manner to pay off the EMI and keep paying just 10% LTCG tax.
Or better still, not sell at all and not pay any additional tax? Just keep paying the loan with your post tax salary and make sure the MF investment money keeps making money for you.

For salaried folks, all this tax is over and above the tax that they already paid on their salary earnings prior to investing.

The world is even more cruel to the people saving for their cars in FDs, paying TDS on interest earned every year, not getting any real post-inflation returns, and then ending up buying more expensive cars (due to inflation that those FDs could not beat) at the end of it all. And then ended up paying interest on money they had all along (Loan against FD)! Wouldn't it have been much better and simpler to just buy on loan and enjoy the services of the car earlier?

None of us are getting any younger with all the waiting involved, might as well live a little more now. How much is living now worth in money terms? Can anyone put numbers on these scenarios?

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

.