Today, majority of Car Sales is through Financing, Other popular instrument is Leasing (through employer), A very small % is through company owned, company provided cars. Financing has made car purchase possible for many middle class citizens of this country, there by realizing the dream of driving own car.
Recently a relative relocated from UK, he was away for almost 15 years, returned lock stock barrel, started afresh without any credit history here in India. He bought a Wagon R with 100% down payment. Few years ago, few of my colleagues who had relocated from USA, had again bought their vehicles (Toyota Innova) with 100% down payment. I have another colleague, who had bought a Tata Indigo without going for any loan, but partly financed by sale of his previous vehicle, rest from savings.
Many of these families are Single Income families except for one, all of them are salaried professionals All above examples indicate that it is possible for salaried people to buy vehicles without opting for car loans.
My own calculations tell me that Financing is approx. 12%-14% of the total cash outflow over 5 year ownership period. I have spent close to 275000/- on car loan interest and foreclosing charges on Happy Car. on previous car Palio which was a company owned company provided vehicle, the lease amount was approx 18% of the cost of the car which works out to be close to RS 90000/- In 12 years, i have spent about 265000/- as financing cost, approx 22000/- per year, which could have been used to fill the fuel into the car. Is it possible to save this kind of money without going for a loan or a lease ?
There is another side of it, Spending RS 500000/- or RS 1000000/- upfront also mean loosing interest on the saved money, this works out around 8-9%, more over we lose the cushion of cash pile which gives comfort feeling for rainy days of the future.
This question has been on my mind since couple of years already. Thought of having this discussion with all of you as i have nothing much to do since Sunday as i am nursing a hurt back due to fall into a ditch near Kudremukh on saturday.
So the questions are ...
* Is it wise to buy a car without a car loan ?
* What is the right ratio of finance from saving : finance from loan to get minimum financing costs ?
* How a single income, first time car buyer, buy a car without a car loan ? How much and how long he should save to buy his first car (say a RS 5L Hatch Back)
* How a repeat buyer upgrade to a higher segment car without opting for a loan ?, is it possible ?
* Car can be new one or refurbished & pre-owned car.
* The person is Salaried, able to afford the EMIs, is credit worthy
* Any borrowing from parents, friends, family members, credit societies, finance companies, banking, gold pledging etc is considered as loan.
* No depreciation benefits can be availed.
* At max double income scenario can be included.
Let me know your thoughts, opinions. Creative souls are welcome to share their spreadsheets, calculations etc.