[BLACNWYTE]

There is another thread titled 'Car loan vs Outright purchase'. I'm quoting myself from that thread.

Originally Posted by BLACNWYTE

Voted for 'Couldn't buy without a loan'.

Read the entire thread (almost) and came to the conclusion that, to each his own. I was torn between selecting Couldn't purchase without a loan or loan taken for any other reason, but finally decided on the former.

Initially while purchasing our first car, I was thinking about financing about 25% of the OTR cost and remaining payment from my savings going for a B segment hatch. However, my spouse who is employed in a PSU bank has an awesome vehicle loan scheme for staff, where the ROI is 6% simple interest spread over a tenure of 180 months! That is essentially the lifetime of the car.

In the repayment plan, the principle amount is deducted for the first 120 months and then the interest for the next 60 months. You can pre pay the principle amount any time and the interest component will be reduced accordingly. We essentially got a C2 segment pseudo SUV at the monthly EMI of a A2-B1 segment car. This was in 2017 and about 4 years down the line, the EMI pinch is getting softer and softer and I can pre pay the principle anytime and save on the interest to be paid too. (I guess this has been mentioned by couple of other members here)

I am a vehement supporter of investing in MFs and SIPs and in that regard I maintain a portfolio of debt- investments- liquidity in a healthy manner. I'm a middle class person and I'm used to (read need) loans even if I don't want them. However, even when I have had the funds for outright purchase, I've taken the debt route and invested the savings. Gods and the market has been kind to me as I've managed to stay in the black with those calls and every time I say, not the next time. The only time I've successfully managed the urge to invest the savings and finance the vehicle was the time I purchased a Dominar 400 for my brother.

As for my next car, I've started saving towards for some time now, but in all probability that will be about 10 years from now and I hope I can own an EMI free car from day 1 at that time.

To add to the above, the car cost (ORP) at the time of purchase was about 2.5 times our combined annual take home salary. I'm not going to lie, the initial year we felt the pinch of EMI but the subsequent year both of us got our wage revision and the EMI concern went away. as of now, the total monthly cost of ownership (EMI+fuel+ insurance+service+ upkeep) comes to max 15% of our monthly income and is only going to go down with time.

Now I'm in a position to close out the loan but it's not really worth it as that lump sum is earning 8-9% compund interest a year and our loan is still at 6% SI. With bulk of the principal already paid, it makes no sense to pre close the fixed interest now.

Also, I have pushed the next car purchase till the loan runs out on this one and hopefully with God's grace, our Panda will continue to serve us even then. This is not a possibility for everyone as we had the advantage of a very generous loan with an even lenient repayment policy.

If I go by majority on this thread, then I shouldn't be able to afford the car I'm driving now and for that matter anything above that A segment. However, I'm driving a C2 segment car and am able to afford the running and maintenance costs. So I guess the key factor is affordability. If you can afford the EMI and running + maintanence costs you can buy the car. Doesn't matter if it's cost is twice your annual take home salary. And for the first five years at least keep the zero dep comprehensive insurance and also keep the max possible IDV. In my case my car IDV is more than the amount which I will need to clear my loan even if I only get 70% of it in case of total loss.

[Maverick Avi]

I have never done this math systematically but can say that any car within a budget that is lower or equals your annual salary should be good. Have not changed any cars before 9 years and have owned 4 cars in total. My father had shared this mantra with me and I never cared about doing the math myself to factor in the changing times and economics but it has worked for me. Kind of a talisman for me in terms of buying a new car.

[Piston_head]

To afford a Mahindra thar 4x4 diesel, how much should a person earn. Going by the forum discussion, one stated that the vehicle should cost only up to 60 percent of total compensation drawn. Then say if the thar costed 18 lakhs, should a person earn 38 lakhs per annum to afford one.

[Neeraj_S]

Originally Posted by Way2Jimny

Buying a car costing less than your annual salary is definitely a good decision.

My first car was 2x of my annual salary. But I was able to do that because I was young, not married, living with parents and most importantly it was the first car in our family. I was tired of going to family functions with parents in crowded government buses all sweaty when others come comfortably in cars. My dad used to run and put a cloth towel from window to capture a seat and fight with others to get us some space. He won few times but many a times we used to go standing for 3-4 hours straight being crushed among crowd.

Exactly. The convenience that your own small car offers you cannot be matched by even the most comfortable or luxurious other conveyances.

Until buying the car, my mom used to avoid going out with my wife and me just so we didn’t need to take a cab and could take my thunderbird instead. That did not use to sit right with me. So, while going for the car I wanted her to not think that there is not enough space or she needs to make any more sacrifices.

She would have been happy even with a smaller car but I wanted her to have the best I could afford as per my opinion. So, I stretched a little. Do not regret that at all.

Sometimes you just have to do what feels right instead of just doing what is right. (That too probably.)

[Way2Jimny]

Originally Posted by shankar.balan

I LOVE this post. I can feel the Pride that you are writing it with... Wishing you the best ahead!

Thanks for the kind words and wishes sir it means a lot!

Wanted to share my story so that youngsters who are few years into their career don't get discouraged looking at the financial numbers. We need to analyse our own situation and take decisions. If car is a need then have to go for it.

[Herschey]

Originally Posted by selfdrive

Sorry for nitpicking, but in the last row, did you intend to state monthly pre tax income?

Yes, it is partly covered by the watermark but becomes clearly visible upon clicking the zoom button located at the bottom right side of the image.

The annual gross pre-tax is broadly calculated considering the individual falls in the highest tax bracket and is servicing a home loan and thereby, getting the maximum rebate for the home loan principal and interest paid during the year.

[MC@1986]

I still remember my first Car purchase during 2011 it was a Ford Ikon TDCI. The EMI was approximately 40% of my earnings then. Went for Car loan of 90% value. My colleagues started investing in real estate, buying flats etc. How ever Iam very much happy and proud of my decision as I had thoroughly enjoyed the drives in my Ikon as it was our first car for family. During 2012, a Fiat Punto Multijet joined our family as my uncle purchased one; this was with 100% down payment though. This had become my home town vehicle. We still have this car with us.

Later during 2018, I had upgraded to Ford Ecosport TDCI selling the Ikon to one of our neighbor. How ever this time the loan amount was small and used my savings + the Ikon's sale amount. I regret the decision of selling the Ikon as there was a need for a second car with-in the family very soon. The Ecosport had really shown the Quality, Drive feel and the perfection of well design and built car. Thoroughly enjoyed/enjoying the drives with the TDCI machine + some good accessories and mods. The EMI was approximately 15% of my earnings then which never pinched in any way. The fuel efficiency and maintenance cost is very nominal as I thoroughly enjoyed the vehicle.

Fast forward to 2023 end; my business trip to South Africa along with the discounts offered by Toyota for the Hilux had ignited my old love for Fortuner which tilted towards the Hilux which was coming to the right price of then Fortuner (around 35 Lakhs). This time, I went the smarter way of purchasing the car through Company Car scheme which resulted in good tax benefit even on fuel and maintenance. Now I pay approx. 20% of my earnings as EMI as it's 100% funded by bank. Really enjoy driving the Hilux as it's my life time dream. Haven't done the mistake of selling the Ecosport this time for two reasons. 1.Taking out Hilux for all the needs will be impractical. 2. The Punto has become old and with the Engine refurbishment done recently; we need a better car at home. My wife prefers to be driven in the Ecosport for it's convenience..

So to conclude; what % of your earnings you should spend on the Car you drive/love; for me it can be until 35% of your earnings as long as you are enjoying the vehicle and living your dream. Definitely living happy is one major success factor to focus on doing good things and further improving earnings. Iam not getting to savings here since Iam not a financial guru ji .

Cheers; Dream and Achieve..

[Way2Jimny]

Originally Posted by MC@1986

2011 it was a Ford Ikon TDCI.
2018, I had upgraded to Ford Ecosport TDCI

Fast forward to 2023 end; my business trip to South Africa along with the discounts offered by Toyota for the Hilux had ignited my old love for Fortuner which tilted towards the Hilux which was coming to the right price of then Fortuner (around 35 Lakhs).

Cheers; Dream and Achieve..

Congrats on the Hilux, you might just be keeping it for ever.

That's a very good upgrade path and choice of cars. I guess you might have gone for the Endeavour if it was available.

This reminds me of another thread how-more-expensive-car-can-work-out-cheaper (How a more expensive car can work out cheaper (if you hold onto it for longer))on our Forum.

You exactly did this. You went a segment above and bought the cars that you loved, which made you hold on to your cars longer.

[Annibaddh]

Oh this is a lovely thread. My first car was 50% of my annual pay, post tax. But bought it with a big loan component so the wisdom of buying a relatively within means car was offset by high loan element/EMI. Also another element to consider is EMI/ free cash (earnings- living costs). For me that was also too high. I’ve had that car for 12 years now, has run 163K and still going strong.

Going forward plan is quite simple. Have started putting money aside (diversified portfolio) to buy a car - instead of paying follow up EMI. Have a budget in mind, target cars in mind and I’m sticking to that. Will stick to 50% number of annual pay, but will pay upfront for the whole thing. No loans on a depreciating asset. Simple.

[RunGaDa]

My first car came kind of late in my 30th year during my first trip to the USA. It was a VW Jetta Wolfburg edition 150HP wonder. It was about 60% of my annual salary.

I was fascinated with cars right from my young age. However in India with my both parents working it was still not possible to own a car. Also I never liked the flimsy Maruti 800 and Omni when they were launched and expressed my opposition in my home when my dad was contemplating on buying Maruti 800.

The reason for buying an expensive car in the US and that to a starter’s sports car with manual gears was my enthusiasm of driving. And there is no better place than the US to enjoy driving (to start with)

[MC@1986]

Originally Posted by Way2Jimny

Congrats on the Hilux, you might just be keeping it for ever.

Thank you for the wishes. You are absolutely right; if Endeavour is available that would be my ideal pick. Technically it's equivalent to Prado which is a next segment for Fortuner. How ever the discount on the Hilux was very lucrative which made ne to decide to go for..

[Mi10]

Human Psychology towards Time Value of Money and Inflation.

Before I ponder, I must admit that I am neither an expert in Psychology not Economics. But as a common man who is also a car enthusiasts I find the link between these three compelling to put forward.

Ever wondered why our grand parents, or parents or our uncles never really splurged even though they had the capacity to do it without taking a loan. Let me give you couple of case experiences. My dad always used to say, his started salary in 1983 was 500 rupees. He was a college professor and used to go on a Cycle to teach. Back then, he was able to save 50-80 bucks as savings after all other expenses including rent, loan repayment, other household expenses. Psychologically, human mind registers these a certain value to these denominations especially early on (during the first few years). Between these 40 odd years or so, he has upgraded his lifestyle on multiple fronts, made investments, made losses, made businesses, created assets etc.. Logically his mind understands the value 500 rupees in current context, but at subconscious level, I have found him many times trying to get into negotiation for paltry 40-50 rupees. It is not that he is a miser, its just that he is conditioned that way early on that he still chooses to bargain even though he knows, nobody will budge.

Second case where I am myself experiencing this shift.
In 2010 I brought a Fiesta S which was about 90% my CTC. Today, Even though I make 6 times that CTC, I am content with a humble Ignis. But whats worrying is I don't feel the itch to upgrade. I am not able to digest the fact that a 10L INR in 2010 which can get you a premium loaded (1.5/1.6/2.0 4 cyl) C Segment Sedan, today can only get you a mid range hatchback (1 or 1.2 L and some of them with 3 pots!!)

I really feel spending 22L+ on something like a Virtus or Verna is like someone robbing me of my happiness which was so affordable at 10-12L range a decade back. Back then I had always dreamed of buying a German performance sedan. Now looks like those dreams are so far off from reality that I don't even check the prices of those cars.

10L is huge money even in 2024. Outside of the the elite 10% of our population, 10L can actually lift up an entire family out of debt or put them into upper middle class league, Education, marriage, assets, so many thing an be done. However, I am unable to wrap my thoughts around the fact, 10L could just fetch an i20 or a Baleno which honestly are just built to cost offerings.

Even though my CTC has grown in these years well and over the rate of growth of car prices, I am unable to come in terms with this fact of spending so much for a C segment Sedan.

Affordability to buy - Yes
Capacity to own - Yes
Willingness - No
Reason: Psychological bottleneck.

Have any of you undergone / undergoing such thoughts?

[sagarpadaki]

Originally Posted by Mi10

Human Psychology towards Time Value of Money and Inflation.

Your thoughts resonate with mine to a great extent.

I am contented with the 2010 i20 and 2018 Tiago we have. I do not feel any itch to upgrade. Rather, I take pride in maintaining the cars and ensuring they are good mechanically and cosmetically to whatever extent possible.

Like you, I find it very difficult to wrap my head around the fact that how the value proposition for a given sum of money in cars has dropped over the last decade.

[puntra800]

Originally Posted by Mi10

Even though my CTC has grown in these years well and over the rate of growth of car prices, I am unable to come in terms with this fact of spending so much for a C segment Sedan.

Affordability to buy - Yes
Capacity to own - Yes
Willingness - No
Reason: Psychological bottleneck.

Have any of you undergone / undergoing such thoughts?

I am in the same boat, I enjoy the cars love to get a feel and drive them but when it comes to spending on them all other things come into play. It is not about affordability it is more on other factors like yearly maintenance , traffic conditions etc. including I can save this much more money if I go for a equally competent car may be a segment lower. My mom keeps scolding me for this, saying if you dont enjoy now when will you

[shankar.balan]

Originally Posted by Mi10

Affordability to buy - Yes
Capacity to own - Yes
Willingness - No
Reason: Psychological bottleneck.

Have any of you undergone / undergoing such thoughts?

Yes. I too have been continuously receiving these frightful shocks at the new car pricing.


The Maruti Swift which my wife received as a Company Car in 2006 cost 5 lacs odd. Now the Swift costs 11 lacs.
The Bolero which I bought in 2005 at 5.8 lacs cost 14 lacs when it was last sold.
The Scorpio which I bought for about 8 lacs in 2008 is now called the Classic and costs 20 lacs.
The Yeti which I got for 19 Lacs in 2011 was excellently loaded. An equivalent spec of vehicle costs 40 lacs and more today.
A friend bought a Mercedes GLC top spec just a few years ago around Covid times for 52-53 lacs. Today a similar model costs 98 lacs!

As you say, just around 12 years ago, we thought very deeply before spending 18-20 lacs on a car and indeed we got a lot more car for that money than we do now.

Nowadays it seems that just about any car one touches costs Rs 20 lacs or Rs 30 lacs! And they are definitely ‘lesser’ in stature than before.

It is very nice to buy a car at a discount. Good to go the Company lease route for tax savings. And best of all, if one wants to own a nice aspirational car, it is best to buy it second-hand. And of course leasing, subscription and other acquisition/ usage models make very good sense if one is not driven much by the desire for possession and personalization.

And one can always travel on holiday and rent nice cars and experience them properly on roads that are perfect for driving enthusiasts.

End of the day the whole world is being driven by this credit based consumerism and thats what is making the whirlwind of financial transactions, driving the economy and keeping people on the virtual treadmill.

A self perpetuating cycle. Whether virtuous or vicious, I will not comment, because I myself am imprisoned in the midst of it.