[sid_deb]

Originally Posted by procrastinator

True that!

1. City: Already Uber/Ola is cheaper considering owned car's Fuel + Insurance + Maintenance + Depreciation .

Agree. However for those having the option to go for a corporate lease, owning a car with driver turns out to be quite cost effective considering the tax advantage.

[timuseravan]

Originally Posted by procrastinator

True that!

1. City: Already Uber/Ola is cheaper considering owned car's Fuel + Insurance + Maintenance + Depreciation

This is true only in very specific cases. For the general self-driving, sub 12lakh car, 10-20km office commute people, car comes out cheaper.

I had this experience last year when I could not drive/ride for a month due to an injury. During office times my option was either exorbitant surge charges or the still expensive uber/ola pool, which made my 30 mins commute to anything between 1 hour to 1:30.

And if you add in a couple of outstation trips per year, owning a car comes out way ahead.

Originally Posted by procrastinator

The only reason to get the car is ease and flexibility.

And this can be a big deal if you do not stay in areas with high population density. It takes anywhere between 10 to 30 mins for a taxi to arrive.

[Ragavsr]

Originally Posted by Dry Ice

Going by the recent trends*, in a few years, it might become - NO car @ ANY salary!

Originally Posted by timuseravan

I had this experience last year when I could not drive/ride for a month due to an injury. During office times my option was either exorbitant surge charges or the still expensive uber/ola pool, which made my 30 mins commute to anything between 1 hour to 1:30.

Don't have a car and reach work late half an hour every day.

That's been my experience with Uber /Ola and public transport over the last month owing to a finger dislocation which meant I couldn't drive my RE or the scooty and my car which was in the workshop for 2 weeks due to injector issues.

I couldn't wait to get my car back. Was such a relief.

Time is money. Using Uber/Ola/public transport is okay only if a person doesn't have time bound work. No thanks. Plus walking some distance or waiting for a cab in 42 degree sun in killing humidity is not cool at allng. Its an instant headache trigger for me and ruins my day.

I don't really mind any car as along as it has a steering, AC and 4 wheels. I am good to go.

[adimicra]

Very interesting discussion.
I never thought about this with respect to salary. As long as I have the need and my TOTAL EMI burden is within control (<50% of net income), I think it should work out fine.

Also, when we are talking about salary, is it the net salary or gross salary? This makes a huge difference as your salary increases.

Currently, I have a 8 year old Honda Jazz which is serving me well. I can definitely afford to upgrade but I don't feel like considering my usage, road conditions, traffic etc. Earlier, when I was younger, I used to think that when my salary will hit XXX amount, I will buy a luxury car - Merc/BMW etc. Now, my salary is actually more than XXX but I feel like I will do better to spend the money on traveling abroad or retirement corpus or child's education. So, with time, perspectives and priorities change.

In general, if you don't have any significant loan on your plate, you should be able to buy a car worth 50% of your net annual income easily. You can also stretch to 100% of your net annual income depending on your other priorities.

[arindambasu13]

Originally Posted by adimicra

Also, when we are talking about salary, is it the net salary or gross salary? This makes a huge difference as your salary increases.

I would imagine that it would be net rather than gross salary. Net salary is what you get in hand after deduction of taxes, essentially meaning that the net amount is what you really have in your account that can be utilised for personal needs.

Of course, needs and desires do change with age and perspective. A 3 series has always been a dream car, but as reality of the harsh urban environment, terrible road infrastructure and unimaginable traffic congestion sets in over the years, I can see myself identifying with the logic of smaller, more compact cars, which are easier to navigate and park in the city, and of course, cheaper and easier to maintain. Spending 40-50 big ones on a car which is constantly giving you ownership anxiety somehow seems to make lesser and lesser sense as days go by. I therefore find myself looking more and more at the compact car segment for better options for my next car.

[rajushank84]

I was doing the math on this recently. Going by the 15% rule, a salary of take-home Rs.60K-ish puts us at 9K per month.

After factoring in everything from depreciation, insurance, maintenance, fuel etc - that puts the affordability at around a 3.5-lakh car max, for that salary (The crystal ball says I see a K10 in my future).

Curious how everyone else applies the 15%. I intentionally didn't apply it to total worth, but rather to disposable income. The reason is, I see Transportation as a category of expenses, along with Groceries, Clothing, Housing and so on. So I'm inclined to treat it as a percentage of income being spent.

[GRAND23]

I go by simple assumption and this is based on my personal experience. If my salary is 10 lakhs, then I see that my car on road price is under 10 lakhs. Now that I have home loan EMI, I am badly looking to upgrade I am looking for pre owned cars which is win win situation for my driving enthusiasm and financial commitments. Having said that if you don't have any commitments, you can take risk of owning bigger car. The decision lies with the individual situations. But it's difficult to decide what car @ what salary.

[arighna.dutta]

Originally Posted by rajushank84

I was doing the math on this recently. Going by the 15% rule, a salary of take-home Rs.60K-ish puts us at 9K per month.

After factoring in everything from depreciation, insurance, maintenance, fuel etc - that puts the affordability at around a 3.5-lakh car max, for that salary (The crystal ball says I see a K10 in my future).

Curious how everyone else applies the 15%. I intentionally didn't apply it to total worth, but rather to disposable income. The reason is, I see Transportation as a category of expenses, along with Groceries, Clothing, Housing and so on. So I'm inclined to treat it as a percentage of income being spent.

May be a wrong way to assume things, but similar calculation makes me think, that everybody is getting paid really well in Bangalore (not limited to Bangalore though).

For me, if I cannot buy a car without a loan, then I cannot afford it and that is where the story ends, however, seems, those who got good amount of Vitamin M, rather take a car loan and invest their own money somewhere else to gain more profit.

[Yieldway17]

My simple formula for deciding if I can afford anything is

1) Can I pay >=50% of the price of the product when buying?
2) Can I afford to throw away the EMI amount per month and it not affect my regular savings and lifestyle?

I consider all my assets (except cash in bank and money based investments) as zero value and hence the above formula works for that assumption.

[arit.mondal]

Originally Posted by arighna.dutta

For me, if I cannot buy a car without a loan, then I cannot afford it and that is where the story ends, however, seems, those who got good amount of Vitamin M, rather take a car loan and invest their own money somewhere else to gain more profit.

I did some calculations. On a 1 lac loan for 3 years, total interest payout comes to 15k. If someone decided to pay 1 lac outright in cash, he would have let go of the opportunity to get ~17k in interest from deposits post 30% tax deduction. So a customer taking loan isn't just breaking even, he is making some extra bucks out of it compared to full cash payment.
So the loan route doesn't seem that bad. Or am I missing something here?

[Red Liner]

Originally Posted by arit.mondal

I did some calculations. On a 1 lac loan for 3 years, total interest payout comes to 15k. If someone decided to pay 1 lac outright in cash, he would have let go of the opportunity to get ~17k in interest from deposits post 30% tax deduction. So a customer taking loan isn't just breaking even, he is making some extra bucks out of it compared to full cash payment.
So the loan route doesn't seem that bad. Or am I missing something here?

How can borrowing money from a bank be cheaper than putting money in one? How does the bank make money?

Lending rates are always higher than deposit rates.

[arit.mondal]

I assumed 8% return on 1lac investment. Not all in FD, but a balanced portfolio with 1/3rd in debt, equity and FD can yield minimum 8%.

For the bank, it's a different ball game, they are just taking X rupees at deposit rate and lending the same to firms at much higher rate (That's why corporates float NCDs, if they can, to raise capital from public instead of banks which is expensive). So this differential will always ensure that banks stay in money.

But from a salaried professional's point of view it's different. The two options are:
1) Pay 1lac in cash upfront. Here the opportunity cost is the amount of interest he could have earned on this money in 3 years (I assumed 8%, which is pretty modest if investment is spread across equity and debt)

2) Take 3 year loan (~9% interest). The cost here is extra cash outflow for payment of interest part of loan over 3 years.

Note: It might be a bit puzzling, how this can work with higher loan interest rate(9%) compared to less return-on-investment(8%) rate. That's because the entire 1lac payment was yielding interest throughout the 3 years. But in the case of loan, with every EMI the outstanding principal amount is gradually reduced. That is you pay interest on entire 1lac for the first month only, in the second month it will be slightly reduced and so on.

So what I am trying to say here is that even if one has the money upfront, it might be more profitable to take a loan depending on the opportunity-cost, i.e., how much returns one could have generated from the upfront payment (which is sacrificed in case of cash payment).

[Yieldway17]

Originally Posted by arit.mondal

So what I am trying to say here is that even if one has the money upfront, it might be more profitable to take a loan depending on how much returns one could have generated from the upfront payment (which is sacrificed in case of cash payment).

This is a fair point. I personally believe in being debt free as soon as possible even if I lose few thousands and hence I go with the hybrid model (50% down + 50% loan) as much as I can. It hedges the risk of me defaulting on the loan due to an unseen emergency and also hedges the opportunity cost of investing that money. It doesn't work out always and for everyone but has worked so far for me in my life.

[Altocumulus]

Originally Posted by Red Liner

How can borrowing money from a bank be cheaper than putting money in one? How does the bank make money?

Lending rates are always higher than deposit rates.

Lending rates are reducing balance interests while deposit are compound interest. Taking a loan is cheaper.

E.g. For 10L loan for 7 years, total interest paid is 3.5L at 9.1% reducing interest. Effective simple interest is 5% per year. Whereas you will get 15L+ when you put 10L as fixed deposit.

There was already a debate about this. Mathematically one cannot argue the above calculation as flawed but again there are concepts like present value, future value, etc. Personally for me I would prefer the extra 1.5L in my account rather than 0INR. Also the mental security of 10L as fixed deposit sitting under my name.

[rajushank84]

That makes sense. And FD is just the safest, taxable form. MF is even better.

Another benefit to taking a loan is, it is an amount you see on a monthly basis so it gets factored into the monthly family budget.