[Abhi_Automobile]

Why would you want to borrow at 10-12% and invest to get returns at 8-10%?

Well, if you even remotely any kind of investor, you can surely manage more than 8-10%

Yup, but the prime reason why anyone should go for a 7 yr loan will be to keep the EMI burden low on a month on month basis. Else, maybe one shouldn't take a loan at all!

[zulfi hansi]

Originally Posted by no_sweat

Just a thought experiment with hypothetical figures:
suppose you have the margin of about 10K per month.
if you go for 3 yrs loan, EMI: 10k
if you go for 7 yrs loan, EMI: 6K
Difference: 4K - If you put this in a regular SIP (ELSS perhaps)
then the returns after 7 years - your interest is covered - maybe even the cost of the car if markets are booming.

Kindly note that as this is the SIP, you get the benifit of dollar cost averaging.

I did not get your math, SIP (ELSS)? Please elaborate, this is a very radical advise, that is if I am thinking right!

[thedreamcatcher]

For one, as someone mentioned, 7 yr loans are FIXED as well. Fixed or floating depends on the type of scheme. I have availed of 7 year loan on one of my cars to keep the emi down, and then close it after a few years

Most public sector banks, even now offer this. State Banks

I had availed on from State Bank of Patiala, but know a lot of others do as well

[Auto_Fan]

Here is the math i worked out for 7 yr vs. 3 yr loan and investing the surplus in a SIP

Loan amount - 7L
Interest rate - 12%

3 Yr Option
EMI - 23250
Interest Paid - 1,37,000
Princi Paid - 7,00,000
Total paid - 8,37,000
SIP Investment from 4th year onward - 23250 per month
SIP return - 15% (Standard return asumption for any equity based investment)
Return on Investment at end of 7 years (Pre tax) - 15,35,517
Return on Investment at end of 7 years (Post tax) - 10,28,796


7 Yr Option
EMI - 12,357
Interest Paid - 3,37,981
Princi Paid - 7,00,000
Total Paid - 10,37,981
SIP Investment - 10,893 per month (Surplus as compared to 3 yr plan)
SIP return - 15% (Standard return asumption for any equity based investment)
Return on Investment at end of 7 years (Pre tax) - 16,22,710
Return on Investment at end of 7 years (Post tax) - 10,87,216


Bottomline-
For 3 yr option, pay 8,37,000 in 3 yrs and get 10,28,796 at end of 7th year (not 3rd year)

For 7 yr option, pay 10,37,981 in 7 yrs and get 10,87,216 at the end of 7th
year

What is best for you? You decide

[thedreamcatcher]

^Investment point of view, it works without the loan equation as well. Hence I would like to leave it out of this equation

But at one point of time, looking at a simple fundamental aspect, 24k for an EMI entirely depends on the income level of the person (how many have the ability for a 20+k emi), and can be way way out of the limit for several people. But the whole point for going for a longer emi, is primarily to ensure payment is within a budget and to enable the person to go in for probably a better car.

In this post, the person want to go in for the 7 year option, so he can keep his emi low. And most oftne, who goes on till the 7th year.

This is the same principle that works in commercial real estate for reits as well. They spread the amortization over a 30 year period, and depending on terms, either go in for interest only payments and then terminate with a baloon payment. This ensures enough additioanl liquidity every year, or in a car loan case, every month and then sell the car and pay off earlier, or when you get money, close it by the end of 4th / 5th year or whatever

[0-100]

I cannot throw much light on the details about 7 year loan, but yes it is possible. One of my friend got 7 years loan from Oriental Bank of Commerce for his Honda Jazz.

[maximuzz]

I went to the BMW showroom and asked them finance options on the X1. They said that the top Model would cost around 30 lac ex-showroom and another 4 lac with the RTO and Insurance. So a total of 34 lac.

He told me 2 options for 5 and 7 years. With a down payment of roughly 20% plus interest of 9.75%, I can take the car home and would have to pay 49000- approx for 5 years and 40500- for 7 years as EMI. He did say the 9.75% interest on the EMI would be fixed.

Hope this helps.

[shankar.balan]

@maximuzz, going by your post;

For this BMW X1 top end model at 34 lacs on road one would need to pay Rs 6.8 lac up front. (20% of 34 lacs)

Loan amount of 80% would be approx 27.2 lacs.

@EMI 49000 over 60 months = 29.4 lacs (29.4 + 6.8 = 36.2 lacs over 5 years) - effectively one would have paid 2.2 lacs worth of interest (being the differential between the amount paid up over 5 years (29.4 lacs) and the loan taken (27.2 lacs).

@EMI 40500 over 84 months = 34.02 lacs (34.02 + 6.8 = 40.82 lacs over 7 years) - effectively one would have paid 6.82 lacs worth of interest (being the differential between the amount paid up over 7 years (34.02 lacs) and the loan taken (27.2 lacs).

My impression is that somewhere the differential in terms of amount of interest paid appears to be a bit too high between the 5 year and 7 year tenure. In effect the extended tenure of 2 years is not really justifiable at such a high cost differential in terms of interest payable.- This is only my opinion and submission.

Suggest it would be better to check again and be sure of the facts.

Originally Posted by maximuzz

I went to the BMW showroom and asked them finance options on the X1. They said that the top Model would cost around 30 lac ex-showroom and another 4 lac with the RTO and Insurance. So a total of 34 lac.

He told me 2 options for 5 and 7 years. With a down payment of roughly 20% plus interest of 9.75%, I can take the car home and would have to pay 49000- approx for 5 years and 40500- for 7 years as EMI. He did say the 9.75% interest on the EMI would be fixed.

Hope this helps.

[maximuzz]

Originally Posted by shankar.balan

@maximuzz, going by your post;

For this BMW X1 top end model at 34 lacs on road one would need to pay Rs 6.8 lac up front. (20% of 34 lacs)

Loan amount of 80% would be approx 27.2 lacs.

@EMI 49000 over 60 months = 29.4 lacs (29.4 + 6.8 = 36.2 lacs over 5 years) - effectively one would have paid 2.2 lacs worth of interest (being the differential between the amount paid up over 5 years (29.4 lacs) and the loan taken (27.2 lacs).

@EMI 40500 over 84 months = 34.02 lacs (34.02 + 6.8 = 40.82 lacs over 7 years) - effectively one would have paid 6.82 lacs worth of interest (being the differential between the amount paid up over 7 years (34.02 lacs) and the loan taken (27.2 lacs).

My impression is that somewhere the differential in terms of amount of interest paid appears to be a bit too high between the 5 year and 7 year tenure. In effect the extended tenure of 2 years is not really justifiable at such a high cost differential in terms of interest payable.- This is only my opinion and submission.

Suggest it would be better to check again and be sure of the facts.

Now that you have pointed it out, I think you are right because 5 year EMIs are pretty common and he verbally knew the EMI costing.

When I asked him to calculate for 7 years he did take sometime to calculate it and I think he did it wrong, because with a 7 year finance and the interest he quoted it comes out to be an EMI of 35537 approx.

I will go back and get the facts straight. I did not take much interest as they didn't have the car also for display.

[shankar.balan]

perhaps. You might find the EMI to be in the range of 37000 in case of a 7 year loan.

Assuming the loan amount @ 27.2 lacs, over 7 years one would have paid up 31.08 lacs. Differential comes to about 3.88 lacs worth of interest. This may be a little more plausible.

But it is worth checking.

To me a 7 year loan tenure or even a 5 year loan tenure is not as good an idea as a 3 year loan tenure for a car loan because at 3 years one more or less reaches the break even point on a car loan.

cheers

Originally Posted by maximuzz

Now that you have pointed it out, I think you are right because 5 year EMIs are pretty common and he verbally knew the EMI costing.

When I asked him to calculate for 7 years he did take sometime to calculate it and I think he did it wrong, because with a 7 year finance and the interest he quoted it comes out to be an EMI of 35537 approx.

I will go back and get the facts straight. I did not take much interest as they didn't have the car also for display.

[akj53]

Best is to take a loan for 7 years so specified EMI obligation is lowest but pay higher amounts each month as per your paying capacity. This will reduce the tenure and the interest as per your paying capacity, your bank manager will be happy and respect you and your credit report with the bank will have a higher rating.

There won't be any prepayment penalty also and no issues even if you miss 1-2 instalments due to any unforeseen circumstances.

[Abhi_Automobile]

He told me 2 options for 5 and 7 years. With a down payment of roughly 20% plus interest of 9.75%, I can take the car home and would have to pay 49000- approx for 5 years and 40500- for 7 years as EMI. He did say the 9.75% interest on the EMI would be fixed.

When I asked him to calculate for 7 years he did take sometime to calculate it and I think he did it wrong, because with a 7 year finance and the interest he quoted it comes out to be an EMI of 35537 approx.

This is a good example for what I was saying.

Let's leave out the people who have lots of cash components (accounted or un accounted alike). A person who is sitting on a pile of cash would never like to take a loan anyway. It's the other set of people (service class) who look at loans to fulfill their aspirations. The example above may not be universally applicable (as nobody who is loking to squeeze the most out of a loan would go for a Beemer anyway). But let's take this for a case study sake:

The mindset is: Say for e.g. a person has a good sal and has decided to move up in life and nothing short of a Beemer will do. Depending on what is plan is, he may or may not have too many liabilities on his head. The 7 yr option will give him ability to free up cash for some 7 yrs. In this case it comes to 15k a month. He tends to look at this cash as 'immediate usable money' which he can use elsewhere. He will not look at how much 'total interest' has he paid over the tenure period. Why? well, if you always tend to think like this, one should always go for 1 yr loan so that you pay the minimum interest.

A more practical case is that of a person who has salary (more relevantly 'usable money') to afford a City, but he thinks that the City interiors are el-cheapo. So, he wants to buy a CIVIC/Jetta. Now he may be the right type of candidate to take a higher tenure loan ;to pay the EMI amount which actually fits his bill. Yes, he pays more interest over a period of time, but it also makes his life much easier. He doesn't have to go under the burden of loan EMI. Or settle for a car which he finds mediocre. Its to such people that such type of loan is relevant. Consequently, he may decide to settle for a lesser car, but thats a different topic all together.

For the 'I always look at what is the most profitable option' a 3 yr loan is ALWAYS the best option.

Guys, I am not trying to suggest that the 7 yr loan is best loan of them all. But that it is a loan that fits the bill of a section of customers. I have nothing against the person who ears 50 k a month and settles for a loan of 20k EMI a month simply because he doesn't want to pay the extra interest. Just that I want to put the case for a person who earns:

1. Earns a 1.2lakh a month but doesn't want a a 20k EMI.
OR
2. Earns 50K but wants to buy a 10 lakh sedan.

BTW, I am still evaluating what is the best option for me.

PS: All figures are hypothetical.

[no_sweat]

Originally Posted by Auto_Fan

Bottomline-
For 3 yr option, pay 8,37,000 in 3 yrs and get 10,28,796 at end of 7th year (not 3rd year)

For 7 yr option, pay 10,37,981 in 7 yrs and get 10,87,216 at the end of 7th
year

What is best for you? You decide

Wow, I did not think in so much detail. One thing: Would you have the actual discipline to invest in a SIP after you are done with the loan? Maybe you would like to upgrade or buy another car.
On the other hand, this type of thing will ensure that you actually invest. (Been there, burned my hands doing that.)

Also, balloon payment is also an option. Think of this example: You earn X amount now, but buy a costlier car. If you are into software or similar fast growing field, you will earn 2X or maybe 3X amount after 5 years and pay off the loan.
But the wisdom of biting off more then you can chew is also questionable.
On the other hand, what is the cost of passion?
Just a thought.

[MileCruncher]

Originally Posted by maximuzz

I went to the BMW showroom and asked them finance options on the X1. They said that the top Model would cost around 30 lac ex-showroom and another 4 lac with the RTO and Insurance. So a total of 34 lac.

He told me 2 options for 5 and 7 years. With a down payment of roughly 20% plus interest of 9.75%, I can take the car home and would have to pay 49000- approx for 5 years and 40500- for 7 years as EMI. He did say the 9.75% interest on the EMI would be fixed.

Hope this helps.

Originally Posted by shankar.balan

@maximuzz, going by your post;

For this BMW X1 top end model at 34 lacs on road one would need to pay Rs 6.8 lac up front. (20% of 34 lacs)

Loan amount of 80% would be approx 27.2 lacs.

@EMI 49000 over 60 months = 29.4 lacs (29.4 + 6.8 = 36.2 lacs over 5 years) - effectively one would have paid 2.2 lacs worth of interest (being the differential between the amount paid up over 5 years (29.4 lacs) and the loan taken (27.2 lacs).

@EMI 40500 over 84 months = 34.02 lacs (34.02 + 6.8 = 40.82 lacs over 7 years) - effectively one would have paid 6.82 lacs worth of interest (being the differential between the amount paid up over 7 years (34.02 lacs) and the loan taken (27.2 lacs).

My impression is that somewhere the differential in terms of amount of interest paid appears to be a bit too high between the 5 year and 7 year tenure. In effect the extended tenure of 2 years is not really justifiable at such a high cost differential in terms of interest payable.- This is only my opinion and submission.

Suggest it would be better to check again and be sure of the facts.

Originally Posted by maximuzz

Now that you have pointed it out, I think you are right because 5 year EMIs are pretty common and he verbally knew the EMI costing.

When I asked him to calculate for 7 years he did take sometime to calculate it and I think he did it wrong, because with a 7 year finance and the interest he quoted it comes out to be an EMI of 35537 approx.

I will go back and get the facts straight. I did not take much interest as they didn't have the car also for display.

No offences, the above figure doesn't make sense.
As per the calculation sheet attached, a 27.2 Lac loan will have a Rs 44k EMI for 7 Years and Rs 54K EMI for 5 Years.

I have also attached the bank account statement split between the principal and interest.

I know this is how SBI does its calculation. Not sure about the other banks.
EMI Calculation Sheet.xls

[sunishsamuel]

Private banks do not have this scheme, but with an interest rate of 7-10% from SBI (as per an ad) a 7 year loan would be economical to me if i think of for Eg: a new pajero or a fortuner. Did anyone buy such a car with a 7 year term ?

Nt sure how true, but saw an ad that said BMW cars are available at a finance of .99%

My efforts to reach the customer support is in vain. But if that's true, and if i get the loan for 7 years then i can afford a loan of Rs. 30Lakhs @ EMI of Rs. Rs. 36950/-per month. That means i can afford 5 series soon

But i am not sure if the high paying IT jobs would last that long