[AutoSphere]

Originally Posted by hybridpetrol

Taking your example, a guy with 10L Annual take home salary can buy a home with 50L Home loan, and he can afford to pay an yearly EMI of 3.5L for car loan, right?
Now, a little bit calc - 50L Home loan, means roughly 45K Home loan EMI, and 3.5L annual EMI for car means around 30K a month EMI on car loan.

Or did you mean something else? Please clarify.

My view is this:
P.S - Speaking from experience, it is rather difficult way to lead life with a lot of creditors waiting to deduct EMIs from our accounts, leaving little to lead life, and save.

First of all, I agree with your general observation about leading life with creditors breathing down your neck - and definitely not advised.

I didn't mean that both loans could/should be taken together.

However, car loan of 3.5L @12.5% for 5 years should have an EMI of 8k/month, Or am I missing something?

[hybridpetrol]

Originally Posted by AutoSphere

First of all, I agree with your general observation about leading life with creditors breathing down your neck - and definitely not advised.

I didn't mean that both loans could/should be taken together.

However, car loan of 3.5L @12.5% for 5 years should have an EMI of 8k/month, Or am I missing something?

Thanks for clarification! Going by the number of people with less salaries going directly for Honda Citys, 3.5L (An Alto or Kwid) for a 10L salaried example seemed too less for me - I infact misunderstood the 1/3 salary for car EMI part of your rule as 3.5L * 5 = 17.5 Total EMI with interest (which can buy nothing more than a C2 sedan anyway!)

Actually, this is one really good idea to limit the car purchase to not more than one's 1/3rd of annual salary! EMI + Petrol + maintenance would be very cheap in comparison to the salary and one need not worry about the upkeep of the car!
I am currently driving an Alto myself, without any car loans, and it does not bother me financially in any way, and all it gives me is satisfaction every time I drive it!

[Latheesh]

There goes my new car plan . Looks like I have to continue driving my 2009 Spark (already clocked around 87000 KM).
I know a person who was using an Activa and public transport till last May. He went for Octavia Ambition TDi last year as his first car without loan.

[AutoSphere]

Originally Posted by hybridpetrol

Thanks for clarification! Going by the number of people with less salaries going directly for Honda Citys, 3.5L (An Alto or Kwid) for a 10L salaried example seemed too less for me

Thanks and yes, I am being a bit conservative on the car front - especially as everyone agrees it is a depreciating asset. Maybe if the house is taken care of and/or adequate down-payment is available, one can be a bit adventurous and go for a higher segment car. Finally, some emotion always creeps-in when buying a car

[m3_07]

Originally Posted by jetsetgo08

My organization does offer a car lease but for a much higher salary bracket.
Is there any other way to apply for car lease?

Car lease is a company benefit that comes bundled with your compensation. Also, this form of a loaner agreement will give you tax benefits too.

There are no such schemes outside the organisation that you work for, in the public domain.

[hserus]

Originally Posted by m3_07

Car lease is a company benefit that comes bundled with your compensation. Also, this form of a loaner agreement will give you tax benefits too.

There are no such schemes outside the organisation that you work for, in the public domain.

It makes little or no sense because the corporate lease is usually serviced by private vendors who will charge an iniquitously high interest rate (12..13% generally) whereas the car loan rate in for example SBI is around 10 or 11% - and that's not counting the various hidden penalties for early closure, prepayment of loan etc.

There's about a dozen better ways to fill out your company FBP, I would say.

And you still wind up spending your money to buy an expensive car - which spending may not make too much sense for the relatively lower amount of tax you will be charged on a 10 lakh salary. And wind up paying more in terms of spares / repairs etc for the costlier vehicle.

You could instead buy a kwid, alto etc and then take a housing loan, or use the spare money to buy a plot, invest in good mutual funds etc etc. Makes much more economic sense NOT to get into a needless debt trap that early in your career.

Besides at that EMI level if you suddenly have a kid or face an illness among your elders god forbid, you will be in extremely straitened circumstances.

[vinit.merchant]

Originally Posted by m3_07

Car lease is a company benefit that comes bundled with your compensation. Also, this form of a loaner agreement will give you tax benefits too.

Originally Posted by hserus

It makes little or no sense because the corporate lease is usually serviced by private vendors who will charge an iniquitously high interest rate (12..13% generally) whereas the car loan rate in for example SBI is around 10 or 11% - and that's not counting the various hidden penalties for early closure, prepayment of loan etc.

There's about a dozen better ways to fill out your company FBP, I would say.

And not to forget the amounts charged as VAT and Service tax by the leasing companies which almost negate the tax benefits. Even at 30% tax bracket the net saving is a mere 8-9 % if not less.

[Parth46]

Originally Posted by Acharya

In a conservative place like Bangalore where many people live way under their means, this ratio would be minuscule.

Also, one should take loan for car only when it helps save some tax. Otherwise better to put down cash for such expenses, like cars.

On a lighter note, perhaps you & I have experienced very different versions of Bangalore, cos the spending patterns are very different in my circle which is pretty diverse and includes people in different life stages/situations.

People living it up is more like it, rather than the ones with common sense who prefer to save for a rainy day.

To the OP - here's what I did. Saved up like crazy in the first few years of my career and ended up buying a top-variant Grand i10 petrol with full cash. I still pay EMIs though, but only to myself and this amount + resale of this car will fuel my next car purchase either in full or pretty substantially.

I enjoy this car to the core, so does my family, knowing fully well that no bank is after me for repayment of loan, and the money I've saved this way is being funneled into savvy investments like mutual funds.

Go with as little loan as you can, of course balancing it nicely so you don't end up giving your everything as down payment.

All the very best.

[rdst_1]

Originally Posted by Parth46

On a lighter note, perhaps you & I have experienced very different versions of Bangalore, cos the spending patterns are very different in my circle which is pretty diverse and includes people in different life stages/situations.

People living it up is more like it, rather than the ones with common sense who prefer to save for a rainy day.

To the OP - here's what I did. Saved up like crazy in the first few years of my career and ended up buying a top-variant Grand i10 petrol with full cash. I still pay EMIs though, but only to myself and this amount + resale of this car will fuel my next car purchase either in full or pretty substantially.

I enjoy this car to the core, so does my family, knowing fully well that no bank is after me for repayment of loan, and the money I've saved this way is being funneled into savvy investments like mutual funds.

Go with as little loan as you can, of course balancing it nicely so you don't end up giving your everything as down payment.

All the very best.

A man after my own heart. I too believe that saving up and buying is better.
For something like buying a home, a loan might be necessary due to the high prices but for something like a car, especially with what the salaries are these days for even middle class families, all it takes is a bit of prudent saving. However most people find it easier to be disciplined about their expenses with the sword of EMIs hanging over their head.

[hserus]

Eh, I hate to say it on tbhp but if you save like crazy and get around 6 lakh in hand your best bet is to use it to put a down payment on a flat, banks will give you about 80% of the house (or car) value as loan.

It is what is known in economics as an opportunity cost - you need to decide whether it is worth deploying your money in a 100% cash payment for your car, or in the way described below. Conditions will of course differ based on salary, house prices, your financial literacy levels etc etc.

Buy a cheap car - you could pay the down payment, buy on a low EMI and then write a cheque for the remainder of the money to the builder, so that you can get your house loan sanctioned.

Oh, don't buy the house unless you're prepared to live there. If you buy a house as an "investment" don't buy it on a loan. Buy only what you're prepared to use for yourself. Rental income will barely cover a fraction of your EMI payment so perish the thought of gaining any sort of income from the flat. OK you can claim a hefty income tax loss on it but that's about it.

If you don't need a house / can't find a house to fit your budget in the areas you are prepared to live in, still buy the cheap car, stick the remainder of the money in mutual funds (or even an FD if you're financially unaware - else mutual fund salesmen, especially bank "relationship managers" will strip your fortune clean), and pay EMI on a car loan. For a car that's in the midrange of whatever model you finalize on, VX instead of ZX for maruti for example. Enough creature comforts like power windows and such, no overpriced, fancy features - and a decent chance to get ABS / airbags - which the top end will have, along with a lot of bling that is frankly unnecessary.

FYI State Bank Group has the lowest rates, State Bank of Bikaner and Jaipur seems to have a few fractions of a percentage lower interest rate than the other State Banks.

Note - if you PM me I can introduce you to the guy who I pay to manage my investments - for a change among such people, he is totally honest and transparent / unbiased, rather than commission driven. I've earned a lot from his advice, and saved even more.

[Parth46]

Originally Posted by hserus

Eh, I hate to say it on tbhp but if you save like crazy and get around 6 lakh in hand your best bet is to use it to put a down payment on a flat, banks will give you about 80% of the house (or car) value as loan.

Mate, I think you read too much into my post and assumed a lot about my financial awareness or the lack of it - if indeed this section of your post was regarding my point above.

I never implied that I "saved like crazy" only to buy a car, nor that I was able to save only 6 lacs or more or less than that, or even the fact that I channeled all my savings into a cash-based car purchase. In fact, far from it. I saved like crazy at an overall level as at that time my salary was well over my expenses, and I built a corpus to take care of a lot of things, not just a car.

IMHO, a Grand i10 IS a relatively cheap car, if you don't count the very entry level econo-boxes available. I wanted to buy a minimum set of safety and comfort features for myself and family and got what I thought suited my needs to the T. Your mileage may vary.

Regarding flat/RE - that is a bundle of woes I deliberately stay far away from, especially in a place like Bangalore where BBMP will first give you all needed approvals and then tear down your place after referring to a 110 year old map!

Also, it's prudent these days to be open to relocation for better career opportunities than getting tied up to a city.

Banks will give you a loan for almost anything under the sun, and I honestly do not think that if one has around 6 lacs in hand the best use of it is to make a down payment for a flat.

My $0.02

Cheers

[hserus]

Oh it was generic - and all based solely on the "have 6 lakh in hand". Of course you know your finances far far better.

If you saved to that extent - and minimized your expenses to stockpile cash - that too is a sort of good thing but again there's the opportunity cost of all of it accumulating in low interest SB account, short term FD / RD / debt fund (and hence either comparatively low rate of return / subject to short term capital gains tax) etc. Again only a particular examination of your finances would give you the entire picture, let you take an informed decision.

Each relocation to a new city has its new costs not all of them monetary - eg: kids suddenly having to pick up kannada or marathi as an additional language, sky high demands for donation if you move in the middle of an academic year (or maintain one house in your destination city and keep your family in your old home for some months) - and ultimately, unless you're moving abroad, moving from one city to another in India for a few lakhs here or there may not always be profitable. Even if abroad, there's super expensive locations such as the bay area, boston or new york that'll put interesting spins on financial calculations.

That 110 year old map by the way is the only one that shows where the storm water drains actually were - and judging by chennai's experience, if your flat chances to be in one of those places, in case there's a heavy rain for a week, like during the floods, such flats built on storm water drains, filled in lake beds (basically every area named xyz sandra) - well, you will end up reaching it by boat. One of my relatives bought just such an apartment in Chennai, spent around 12 days stuck there and supplied by boat + IAF helicopter.

So while the BBMP is to blame for a lot of things - including their entire A khata B khata system and regularizing from B Khata that has ended up in every storm water drain, lake bed and natural drainage channel becoming flats and office space, in this case they have seen the light - possibly too little light and too late but still ...

[soumobakshi]

well Interesting thread, and a thumb rule that should be followed is all EMI's put together should not exceed 60% of your Net Monthly Take Home Salary.
The remaining 40% can take care of you and your family without filling to hard a pinch.

Having said that, many will advocate to save up and then buy the items of luxury which i think is right i their way, but then it should not be a case where you save and be ready to buy but them you have very little scope to enjoy either by virtue of old age or god forbid sickness

[soumobakshi]

well Interesting thread, and a thumb rule that should be followed is all EMI's put together should not exceed 60% of your Net Monthly Take Home Salary.
The remaining 40% can take care of you and your family without filling to hard a pinch.
So if you do not have any home-loan or other loans you can go in for a higher segment car than a person with other commitments.
Another rule of Thumb is never go for a car which is more than your Yearly Take Home Salary or Income.

Having said that, many will advocate to save up and then buy the items of luxury which i think is right in their way, but then it should not be a case where you save and be ready to buy but them you have very little scope to enjoy either by virtue of old age or god forbid sickness.

[jayded]

Maximum 15% of your salary for a car? That’s a very prudent way of living. But that’s not how a regular car purchase is made, especially if you have posted that query on team-bhp and not on a money management forum. Make it a practice to have monthly savings (This is not targeted towards buying the car, but prudent savings to make your money grow). Make it to the tune of 35-40% of your salary and start saving from your initial days of working since that’s the time when you have the least cash outflows and responsibilities. Take your healthcare policies, including your parents and kin. All this will go a long way in case of any unforeseen emergencies. Cut down on other expenses, which do not add much value like a 50K phone that you keep changing every year, eating out often, etc. A car you love driving is best enjoyed when you are young and energetic compared to when your health starts to take a dip. A house loan is pretty much inevitable towards the later part of your life, so don’t sweat for it way too much during your initial years.

So basically what I am trying to say is that for a person who started earing and doesn't have much commitments, it’s OK to spend a good chunk of their income to buy something they like, by prioritizing other spends accordingly.

P.S. I am not advocating anyone to be financially reckless. Just sharing my school of thought.