[Lobogris]

Originally Posted by Durango Dude

I've not voted for either option; these are very very very difficult and uncertain times we live in. I'd never take a loan at all, if you can't afford a Merc; this is no way to "afford" one. Almost all sources of income are evaporating, sit tight have a tighter leash on expenses, factor in health that's sure to take a hit. Time for some penny pinching and definitely not a time to buy "luxury".

Even though that is sound advice, if everyone did just that then we would end up creating a huge recession. On the other hand if people start spending like before then things could recover and we could be back to business as usual. As far as my view on this is concerned, yes, it is fine if you have a good income stream and want to keep it for 10 plus years. I would of course pick it up used for less than 10 lakhs after it is around 5 years old. No loan needed.

[AZT]

Originally Posted by androdev

Are we in a car forum or in a CA-club I don't know the small print but such flexibility is welcome if someone dreams to own a nice car while his knees are still in good shape and he has a good handle on his finances. There is a season to do certain things in life - and if calculated risks are taken, such decisions can turn out to be very rewarding.

This is a good point. I think most people who take a car loan understand the whole depreciating asset part, they just don't to wait till they can save the entire amount. I probably wouldn't take on a car loan but I get why many people would.

[Nithesh_M]

Problem with the "save up to buy later instead of long loan tenures" theory is that in this particular segment, the cars don't keep their price tag as is. 2 years from now the next gen model of a 3 series/C class might jump to today's 5 series / E class prices.

Suddenly paying more money on a long term loan doesn't look that bad.

[AirbusCapt]

You buy a Mercedes C class say at 50 lakhs on road with a 20% down payment which is 10 lakh and a loan of 40 lakh for 10 years. After 5 years your C class sells at say 35 lakh (inflation value, present value is about 25 lakhs), and you upgrade within mercedes to say an E class on similar terms ( similar emi and down payment). Do we see the trend? A person buying an overpriced pickup (fortuner) has enjoyed a merc, upgraded to an E class within 5 years, paying emi similar to the fortuner. It's a win win , both for the customer and the manufacturer. Think of this more like a car leasing plan rather than outright purchase.
Even when a person has enough to buy the car outright, it's sensible to opt for a loan. If my 50 lakh is growing at 18% , why wouldn't I opt for a car loan at 12% instead?

[lamborghini]

Originally Posted by AirbusCapt

You buy a Mercedes C class say at 50 lakhs on road with a 20% down payment which is 10 lakh and a loan of 40 lakh for 10 years. After 5 years your C class sells at say 35 lakh (inflation value, present value is about 25 lakhs), and you upgrade within mercedes to say an E class on similar terms ( similar emi and down payment). Do we see the trend? A person buying an overpriced pickup (fortuner) has enjoyed a merc, upgraded to an E class within 5 years, paying emi similar to the fortuner. It's a win win , both for the customer and the manufacturer. Think of this more like a car leasing plan rather than outright purchase.
Even when a person has enough to buy the car outright, it's sensible to opt for a loan. If my 50 lakh is growing at 18% , why wouldn't I opt for a car loan at 12% instead?

I agree with some of these, except:

1) You can get the same car on a 5 year loan with cheaper interest so you save more money and have full ownership over it - when you sell it, you have the money as down payment and a reduced EMI for the E-Class.
If your 50 lakh is growing at 18%, would you rather take a 9% 5 year loan, or a 13% 10 year loan against it?

2) After 5 years, there is no way the C Class will fetch you 35 Lakhs. It is going to be an outdated model in 2 years.
Today you can buy a 5 year old E Class for less than 25 lakhs!

That being said, it is tempting definitely.
We are paying around 60K/month on our Tiguan. After 5 years I sell it, and continue paying the same for a C Class.
But then after 5 years I need to fork up 20% the cost of an E Class, and the additional EMI too. Not to forget Mercedes will value the buyback at lower than what they anticipate market rates to be.

BMW had a similar buy-back for their vehicles. On paper from what I heard it sounded brilliant until I actually saw the numbers - what they valued the vehicle at, and interest rate.
Related thread (BMW & Mercedes Buyback Schemes: Are they genuine?)

[Arjun Bharadwaj]

Contrary opinion favouring liquidity - not just in this financial turmoil, but even in a regular situation(if one can afford this car) get a long term emi with favorable pre Closure terms + invest maximum money in instruments that are liquid and can probably generate more returns than the loan interest. Agree upfront that this is relative and debatable, but maybe this is a cautious middle class mindset speaking aloud. Would love opinions on this to learn different perspectives.

[SmartCat]

Originally Posted by Arjun Bharadwaj

Contrary opinion favouring liquidity - not just in this financial turmoil, but even in a regular situation(if one can afford this car) get a long term emi with favorable pre Closure terms + invest maximum money in instruments that are liquid and can probably generate more returns than the loan interest. Agree upfront that this is relative and debatable, but maybe this is a cautious middle class mindset speaking aloud. Would love opinions on this to learn different perspectives.

OK, these long term loans might make sense for a few select individuals - but it is NOT for those who want to invest elsewhere, hoping to beat the interest charged by the car loan company. Because:

a) Returns are not guaranteed
b) Even if you beat the car loan interest, the gap between interest paid and returns earned on capital by investment is unlikely to be too much.

Think about it - if everybody can generate high return on capital by "investing", why would finance companies bother lending to car loan customers? They would rather make such "investments" themselves.

I think long term car loans might make sense for customers who have a "safe" job, profession or business. If you can more or less predict your long term future cash flows with reasonable certainty, then a 10 year car loan might make sense - because you are getting to experience a luxury car now, instead of the future.

It is not too different from customers picking up an Rs. 1 Lakh Apple iPhone on 18 or 24 months EMIs. Customers these days use finance to purchase consumer goods, because they are reasonably certain about their 18 to 24 month term cash flows

[Arjun Bharadwaj]

Originally Posted by SmartCat

OK, these long term loans might make sense for a few select individuals - but it is NOT for those who want to invest elsewhere, hoping to beat the interest charged by the car loan company. Because...

Big fan of your logical explanations and happy to see different perspectives sir.

Having considered the above, If the loan interest and income on a fixed instrument are in the same ballpark or even a loss making proposition, what is your take on maintaining liquidity by making a smaller downpayment and taking a longer duration loan? Can we say it would boil down to risk appetite?

[SmartCat]

Originally Posted by Arjun Bharadwaj

Having considered the above, If the loan interest and income on a fixed instrument are in the same ballpark or even a loss making proposition, what is your take on maintaining liquidity by making a smaller downpayment and taking a longer duration loan? Can we say it would boil down to risk appetite?

By the way, car/consumer loan interest will never be same as FD interest. Banks borrow from FD investors at 6% pa. Mercedes/BMW Finance will borrow from banks at 9% pa and offer car loan at 12% pa interest to its customers. As mentioned before, Mercedes' 10 year loan scheme (Rs. 1499 per lakh for 10 years) works out to be 13% pa interest.

But then, if you see a luxury car maker offering 6% pa (example) interest car loan, then it is in lieu of a Rs. 10 Lakh (example) discount. If that's the case, either negotiate a lower price or go for that 6% pa scheme. Ditto with those 0% finance schemes on Amazon or Flipkart. If you see a Rs. 120,000 iphone (example) for sale at 0% interest, it means the target sale price for the dealer is just Rs. 100,000 (example).

[Arjun Bharadwaj]

Originally Posted by SmartCat

By the way, car/consumer loan interest will never be same as FD interest. Banks borrow from FD investors at 6% pa. Mercedes/BMW Finance will borrow from banks at 9% pa and offer car loan at 12% pa interest to its customers. As mentioned before, Mercedes' 10 year loan scheme (Rs. 1499 per lakh for 10 years) works out to be 13% pa interest.

But then, if you see a luxury car maker offering 6% pa (example) interest car loan, then it is in lieu of a Rs. 10 Lakh (example) discount. If that's the case, either negotiate a lower price or go for that 6% pa scheme...

+1 on the above. As a personal approach I would find comfort in retaining some funds that I can liquidate immediately vs making a large/full downpayment. And then as some Bhpians mentioned in previous posts, prepay it once the outstanding principal feels less burdensome. Intention is to strike a balance of maintaining some cash in hand and getting that dream car earlier on a lower downpayment. This is more applicable in scenarios where cash flow is hard to predict?

[heydj]

Originally Posted by itwasntme

I’ll swim against the tide here and say that as a ‘normal’ MNC salaried middle-class double income with 2 kids (DI2K) family, IF we do not take advantage of medium to long tenure loans (say 5-7 years), we will NEVER be able to afford that truly aspirational car that we have our eyes on.

This is because new car prices are obscene coupled with Karnataka’s usurious road tax (~21% for C2/D1+ segments) with top variants of even ‘normal’ Seltos / Creta at 20L+. Move up to Superb/Passat/Endeavour/Fortuner and you’re looking at 35-50L. Cast your eyes on the Big 4 and you’re looking at 47-65L for the 3/C/A4 segment.

With these prices and a comparatively low interest rate of ~8%, I’d prefer to pay 20-25L upfront and the rest on EMI on a long tenure loan, which we can easily afford (monthly) given our salaried incomes. Further, we usually prepay our loans within 60-80% of the tenure. I also prefer PSUs (SBI a favourite) and 3 out of our 4 car loans (over 14 years) have been with them.

I am surprised to see such a show of hands against even 5 year terms. I would much rather take the financial plunge, and buy a C300 / 330i / 530i now rather than wait till I am financially set 5 years later.

Totally agreed to your point of view.

One cannot be both financially prudent and get aspirational product at same time. If push comes to shove one needs to choose one over the other.

However at the same time don't go overboard in EMI instead think in terms of acceptable today and acceptable in 3 years time. Basis this decide because it shouldn't happen based on today's cashflows decided on emi and 3 years down the line can afford more but stuck with a car that you don't want.

Buy what you really like and keep for 10-12 years.

[for_cars1]

Originally Posted by landcruiser123

....the car is the single worst investment you can make as a salaried individual...

For any person who values convenient personal mobility on demand, a car is a necessity and an investment to accomplish the same.
For a salaried individual, owning one of the big three German makes at some point is a common aspiration and if their finances permit via loan, then why not.

Originally Posted by Nithesh_M

....paying more money on a long term loan doesn't look that bad...

A longer term loan is a good way to keep the EMI per lakh down initially, but should always be foreclosed in about 3 years. Dragging the loan towards its full term is a big loss scenario.

Coming to think of it, cars like MB seems like a huge liability and not reliable for our driving conditions and feels more unattractive given this reason.
Its actually like a 'Maruti' of Germany with high snob value here and is a good leverage for businessmen to save tax, project status and get more business for themselves.

[Nithesh_M]

Originally Posted by for_cars1

A longer term loan is a good way to keep the EMI per lakh down initially, but should always be foreclosed in about 3 years. Dragging the loan towards its full term is a big loss scenario.

Can you expand on the last line? Are you referring to floating interest loans or is this also case for fixed loans? I was of the impression that with a long term fixed loan you pay fixed amount as interest?

[for_cars1]

Originally Posted by Nithesh_M

.Are you referring to floating interest loans

What I mean't is irrespective of floating of fixed rate, the amount of interest paid over time in a long term loan adds up to an exorbitant value and for a car that would have fully depreciated.
Eg from this thead: 40L loan at 13% interest paid over 10 years will mean 31L interest paid (Total 71L)