[YaeJay]

This has always been a puzzle to me. I have never bought anything on credit or loan. I might consider a homeloan perhaps. Same with my dad. Think I just share his views. We are just not comfortable taking any sort of loan! None of my close friends have ever bought a car on loan. There is one friend who has taken a loan on FD. To me thats all the risk I could at some point of time with a lot of convincing at some national bank.

I do know a lot of co workers at different points of time, go all the way out an max out on loans from pvt banks and buy cars and what not. I also know many of them comfortably settled abroad without their dues paid and a few that have evaded the loans they took during their NRI days

I guess I am just an oldie with old views out here. Taking a loan would make me paranoid. I do wish to learn what I am missing!

Of all the posts I think what GTO said makes sense to me. In my dads voice, why would one want to buy something that you can't buy with what you already have?

Those who take a loan to buy a car, what are the advantages? ( I've seen a few non auto lovers, buy wheels on loan, thrash em for a year, stop repaying, get their vehicles seized and in 10 days have a new car from some other banker!)

Assuming, one wants to pay his depts, cherish the ride, wants to keep him forever, what are the best options? and whats best for a certain period. Suppose i want to buy a new car and keep it only for a year, Whats the best option? ( Here, I do feel I am at loss paying full cash! for some reason I am not able to put a finger on it! gurus help me understand!)

[indiagenie]

Originally Posted by YaeJay

There is one friend who has taken a loan on FD. To me thats all the risk I could at some point of time with a lot of convincing at some national bank.

A loan against FD makes sense if and only if you need emergency short-term cash and have a high interest paying FD available. Instead of breaking a long-term FD with potentially high rate of interest, you can take a short term loan against the FD.

Benefits -
1. You will lose the interest for only the short-term loan tenure and then continue to enjoy the higher interest for the rest of the entire FD term
2. Hassle-free to get
3. No penalty for delayed payment or missing the dreaded 'EMIs'

e.g. if you started a FD at 10% interest rate in 2008 for 5 years and broke it today to meet your emergency cash needs, you will lose 2 ways -
a. either forfeit the interest for the 2 years so far or get a much lower interest for that period (say 5%)
b. get a lower rate of interest when you restart the FD 6 months later since it will be for a shorter duration OR will have to lock yourself in to a longer term to get 10% rate again

On the other hand,if you have -
1. a long-term FD locked at a low rate (lower than today's rates)
2. a FD that started very recently

then you should break it instead as paying the extra 1-2% is not beneficial.

Originally Posted by YaeJay

In my dads voice, why would one want to buy something that you can't buy with what you already have?

Its about optimizing the cost of buying something. For example, if you have a credit card, you can do you regular shopping with it through the month and earn reward points with it. You also have the benefits of not having to carry cash around and make one simple payment and get a report of your monthly spending in the form of the card statement

As long as you can be disciplined enough to not spend more than your monthly budget, it is better to use a credit card than cash. If one does not have that discipline then it is best to avoid all forms of credit, however easily available they are, including OD against FD.

Originally Posted by YaeJay

Assuming, one wants to pay his debts, cherish the ride, wants to keep him forever, what are the best options?

Assuming you do not have the car-lease option from your employer (it is almost always the best option), paying cash-down makes most sense to everybody.

Exceptions -
1. If you do not have the lump-sum cash and still need a car urgently (no option but to go for loan)
2. If you are a finance professional and are confident you can consistently earn a higher rate of interest from investing the lumpsum (e.g. if you are sure you can make 15% or more from investing the cash in stock markets while a car loan is available to you for 10%). WARNING - This is not easy to achieve. As many disclaimers go - Current performance is not indicative of future performance ;-)
3. If your FD is locked to a high rate (e.g. 10% or more) for a long duration (in this case, OD against FD makes more sense rather than breaking your FD to pay for the car)

Originally Posted by YaeJay

and whats best for a certain period. Suppose i want to buy a new car and keep it only for a year, Whats the best option? ( Here, I do feel I am at loss paying full cash! for some reason I am not able to put a finger on it! gurus help me understand!)

The duration does not matter. Since the car depreciates significantly the moment it is registered and loses most value in the first year, you have the bear the maximum brunt of the cost in the first year. In fact, the resale price of the car after one year will make the loan cost pinch even more :-)

[Aroy]

Originally Posted by YaeJay

Suppose i want to buy a new car and keep it only for a year, Whats the best option? ( Here, I do feel I am at loss paying full cash! for some reason I am not able to put a finger on it! gurus help me understand!)

For short term ownership experience a rental may be a better deal. In today's papers I saw Altis renting for 18K/week. Assuming you buy it for 12L and sell it for 9L you have spent 3L or roughly 6K/week. If you went for an annual rental plan you may get it at 10K/week. The plus part is that you pay as you use, the minus is that you pay about double. Added advantage is that service costs are taken care of and in case of any problem/break down the agency will send a replacement ASAP! So for a short term ownership rental is the way to go. And you do not loose value in case of accident!

[YaeJay]

Thank you Indiagenie and Aroy! I guess I do understand it better now.

I've had an add-on card during my college days, it was mostly used to book tickets, since the credit card counters used to have 4 or 5 people max. Luckily, I have never had a habit of compulsive buying. I have always been more of a need based buyer who already knows what he wants when he goes shopping. Shopping for me is usually very quick. (But when I have to buy for others then I do take a lot of time!)

I have had this idea of (good?) investing in some asset that pays as it grows. With a part of whatever it pays you back, one could buy a car or something that depreciates. (In the case of a car, it not only depreciates, there are a lot of added costs).

As for period of ownership, I am still not clear! Since I haven’t taken a car on loan, these are my assumptions, you pay a down payment and then pay an EMI for the car. After 1 year, one would have spent on the down payment + 12 X EMI. In all probability, down payment + 12 X EMI would be lower than the cost of the car (?).

Now, what happens when one wants to sell the car?


Rental does seem to have its benefits. I am self employed so that is not an option. But, If I did that, I would be very uncomfortable driving something that I don’t 'own'. Have always been like that, I don’t usually lend or borrow wheels and if I have to I would have to be extra careful so much so that it’s just better to seek alternate transport.

Thanks once again!

[Aroy]

Originally Posted by YaeJay

Thank you Indiagenie and Aroy! I guess I do understand it better now.

Rental does seem to have its benefits. I am self employed so that is not an option. But, If I did that, I would be very uncomfortable driving something that I don’t 'own'. Have always been like that, I don’t usually lend or borrow wheels and if I have to I would have to be extra careful so much so that it’s just better to seek alternate transport.

Thanks once again!

In fact if you are self employed you can get a "lease". It works just like rent with an added benefit of getting the car at the end of the lease period at its "book value'. One good thing about lease/rent is that the expenses are totally tax deductible, unlike out right purchase where you get only "depreciation". Thus theoretically you can get the car "tax free" in one or two years by leasing it for that period!

[GTO]

Originally Posted by YaeJay

Those who take a loan to buy a car, what are the advantages?

From a businessman's perspective :

Say, I am an entrepreneur, have 10 lakh rupees in cash and need a car. If I put that 10 lakhs on a Vento TDI, I don't have any money to grow my business. The only way out would be to take an unsecured loan at 15 - 19% interest. On the other hand, I can finance the Vento at 9.5%, and invest the 10 lakh rupees in my business (with a minimum of 25% ROI).

Small entrepreneurs frequently find themselves in this situation and end up choosing a cheap loan on the car. Liquidity is everything to a businessman, and the most common reason for a business closing down is it running out of working capital $$$.

[carboy]

Originally Posted by GTO

From a businessman's perspective :

Say, I am an entrepreneur, have 10 lakh rupees in cash and need a car. If I put that 10 lakhs on a Vento TDI, I don't have any money to grow my business. The only way out would be to take an unsecured loan at 15 - 19% interest. On the other hand, I can finance the Vento at 9.5%, and invest the 10 lakh rupees in my business (with a minimum of 25% ROI).

Small entrepreneurs frequently find themselves in this situation and end up choosing a cheap loan on the car. Liquidity is everything to a businessman, and the most common reason for a business closing down is it running out of working capital $$$.

How about not spending 10 lakhs on a Vento TDI & instead buying a cheap 2nd hand car for 2-3 lakhs & putting 7-8 lakhs in growing your business. Doesn't a businessman consider that option?

[avishar]

Originally Posted by carboy

How about not spending 10 lakhs on a Vento TDI & instead buying a cheap 2nd hand car for 2-3 lakhs & putting 7-8 lakhs in growing your business. Doesn't a businessman consider that option?

Yes but thats beside the point here.The question which you have put through does not really depend on whether you are a businessman or not but whether whether you find value in a new car,or prefer buying a second hand car.

Sometimes second hand cars turn out to be more expensive to maintain than a 1st hand car too.

[carboy]

Originally Posted by avishar

Yes but thats beside the point here.

Not really. The reason for taking loan was given as cash flow. I gave a method of having cash flow without taking a loan.

Originally Posted by avishar

Sometimes second hand cars turn out to be more expensive to maintain than a 1st hand car too.

Considering the 10 & the 3 Lakh amounts in the post, I doubt if it would be significant.

[AdiSinghV12]

Hi all, this query is posted on behalf of a friend of mine who's a non-bhpian. He lives in Delhi and is planning to buy a pre-owned 2010 BMW 740Li which someone is selling in Chandigarh. Now, the seller is not a dealer and the buyer has no address proof of Chandigarh. But my friend is ready to bear the transfer charges to the DL address. The car is costing him around 52L. He is planning to make a down payment of 35L and take a 7yr loan for the remaining amount from Delhi.

Now the question is;
1. Would the bank easily approve his loan or he will have to face some consequences as the car is brought from another place and is a pre owned vehicle? (He belongs to a well known family and has a good relationship with the bank but still)

2. What should be the rate of interest he should settle for?


PS: Also note down what all should he consider (Only in terms of finance... He has checked the car thoroughly and is happy with it)

[mayankjha1806]

Things might have changed, but in my view this was not possible few years ago.

My first car was Indica and it was registered in Chennai. When we moved to Bangalore i tried checking if i could move the loan to Bangalore for easy operations, but i was told as the car is registered in chennai the loan cannot be in bangalore.

[Turbanator]

It will not be a bad idea to involve either of BMW Dealerships - at Chandigarh ( Preferably ) or Delhi . They will be happy to do financing as well be able to share Service History . Interest rates on Old cars is Higher than New Ones . Bank will want to ensure that the car is Hypothecated in there name before money is disbursed . May be Finance guys at Krishna Chandigarh will be able to help you . By the way getting - Chandigarh Resident proof / registration under 10K is possible

[AdiSinghV12]

Originally Posted by mayankjha1806

Things might have changed, but in my view this was not possible few years ago.

My first car was Indica and it was registered in Chennai. When we moved to Bangalore i tried checking if i could move the loan to Bangalore for easy operations, but i was told as the car is registered in chennai the loan cannot be in bangalore.

Oh okay. Here the thing is if he could get an initial loan for buying the car from another city from his hometown.

Originally Posted by Turbanator

It will not be a bad idea to involve either of BMW Dealerships - at Chandigarh ( Preferably ) or Delhi . They will be happy to do financing as well be able to share Service History . Interest rates on Old cars is Higher than New Ones . Bank will want to ensure that the car is Hypothecated in there name before money is disbursed . May be Finance guys at Krishna Chandigarh will be able to help you . By the way getting - Chandigarh Resident proof / registration under 10K is possible

Thanks for the reply paaji! But he's looking to take the loan from Allahabad Bank which is his parent banker. & he want's a vip number so probably he'll get the car transferred to his Delhi address though it'd certainly be great if you can share the '10k' wala way of getting the resident proof/reg. I'd love to use it if I buy a pre-owned car Should he ask the seller to go to a local dealer/Krishna Automobile? Will the loan procedure be easier if a 'dealer' is selling the car rather than the owner himself?

[Warwithwheels]

Originally Posted by AdiSinghV12

....What should be the rate of interest he should settle for?

Generally, the interest rates on used cars are always on the higher side. Why not look for other sources of finance that could offer a lower rate? Moreover you don't have to undergo or even think about all the hassles of hypothecation, RTO formalities etc., by opting in for the suggest method?

Take a look at this thread http://www.team-bhp.com/forum/indian...ml#post2182990

Typically your friend could look at mortgaging a fraction of any immovable property, Fixed Deposit Receipts or other Securities.

[AdiSinghV12]

Originally Posted by Warwithwheels

Generally, the interest rates on used cars are always on the higher side. Why not look for other sources of finance that could offer a lower rate? Moreover you don't have to undergo or even think about all the hassles of hypothecation, RTO formalities etc., by opting in for the suggest method?

Take a look at this thread http://www.team-bhp.com/forum/indian...ml#post2182990

Typically your friend could look at mortgaging a fraction of any immovable property, Fixed Deposit Receipts or other Securities.

Thanks bro! Can you elaborate the suggested method a bit more? How long is the payback period? (Max?)