Car & Bike When buying car, should one go for loan even when able to pay full ?

raksrules

raksrules

Elite
So my query is say I am planning to buy a car which say costs X Lakhs and assuming I have entire money as well. So should one plonk entire amount if you have or still opt for loan from a bank ?
Any pros or cons of either of approach ?
 
Opting for a loan should always be on a lower priority as you have to pay interest on that. eg. If you keep the money you have in the bank as an FD you'll get around 8-9% interest while the loan interest that you will be paying would be at least 12% which will be a net loss for you in the end.

Reasons for getting a loan even when able to pay full..
You can put the money to better use and earn higher than the interest payment of the car loan. As a corollary to the above FD example, if you can invest in anything (gold/stocks/etc) and get returns of more than 12%(car loan) then it is profitable to take the loan.
Liquidity. You need to have that cash in hand for emergency purposes etc. The above SBI plan gives a very nice option of OverDraft which is almost similar to holding the cash in hand.
Offers/Perks. Low interest offers, offers from employers for 0% interest or tax free interest payments etc.
 
Always better to pay in full, Less hassles. there are some instances where one could invest the amount in higher return commodities/business growth. but if the money is just lying in savings account its better to go for full payment.
 
This is just my opinion.

Car or to be honest any movable asset is a heavy depreciating asset. Meaning they loose value fast. Yet when we take Loan we end up paying more. :(.
If you have the liquid money to buy it outright why would u pay EMI? At least that small amount of saving.

But then again, if you are some big shot and have some very nice Car leasing options.. Then yea it makes sense. But your own money? No Sir.

Also the burden of paying monthly payments. Why would u want that?
 
raksrules said:
Any harm in that ? I mean I don't have any black money, still anything to be concerned about ?
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That statement is applicable for self employed people. They do fudge the numbers, Most cases. For a salaried person, It doesn't affect. There also, If you have other sources of income. Do check with your CFA.
 
The only advantage of loan over lumpsum is that it improves your credit score.
Else, if you have the money and dont care about the credit score (ie employed with a big package) , just pay upfront.
 
Yes, it is much cheaper to buy with cash (you may even get a discount for such a transaction) but a loan gives you the advantage of not depleting you bank account all at once, so that if a contingency arises, you have the cash (defaulting on the loan is a low priority in such a scenario). So you need to make a call on whether the extra amount you pay is worth the peace of mind that it brings. If you have 1Cr liquid and buy a 5L car, you still have 95% of your assets. If you only had 20L liquidity, you are left with only 75% of your assets.
 
I always think about it like this... time vs money. if you assign 1 unit of time with x amount of money and then compare it with the interest you are paying over the tenure. if its worth it, then go for the loan (as if you are buying time with that interest money). otherwise pay in full.
 
Chaos said:
When you put cash down, it gets reported to the it guys. Do remember that.
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Not a problem for honest people :)
soggy316 said:
Yes, it is much cheaper to buy with cash (you may even get a discount for such a transaction) but a loan gives you the advantage of not depleting you bank account all at once, so that if a contingency arises, you have the cash (defaulting on the loan is a low priority in such a scenario). So you need to make a call on whether the extra amount you pay is worth the peace of mind that it brings. If you have 1Cr liquid and buy a 5L car, you still have 95% of your assets. If you only had 20L liquidity, you are left with only 75% of your assets.
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There are more chances of discounts/rebates when going with finance option as the dealers have a margin in that. if we pay cash upfront then hardly any discounts. even the accessories they didn't gave free.
 
Chaos said:
When you put cash down, it gets reported to the it guys. Do remember that.
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This is inaccurate. Only purchases above 10 lacs are reported. Any car dealer or CA will tell you this.
Therefore people who buy luxury sedans or suv, always take the financing route, not cause they dont have the money to pay upfront, but more so to avoid the IT hassle.
 
By the way who reports to the IT guys? The car dealer himself?? I dont think so. Or your dear jealous friend or near and dear ones???
But again why declare the outside world that you bought the car on a full-down payment, instead declare you got it on loan basis.
 
nRiTeCh said:
By the way who reports to the IT guys? The car dealer himself?? I dont think so. Or your dear jealous friend or near and dear ones???
But again why declare the outside world that you bought the car on a full-down payment, instead declare you got it on loan basis.
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The car is registered with the RTO. Thats when high value transactions get reported. So are international vacations, property deals etc etc. The most common places for IT dept to pick up leads are these.
 
Simple words All depends Upon the Cost of the product..
Higher amount will definitely come under their radar,later any problem arises one has less answers where the huge amount came from
Small amount i assume wont attract much attraction unless u have a bad day
These days a good Smart Phone cost 40k and if u have 5 phones in with the same amount in your family,what the amount comes to end of day lol
 
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