@galacticcapybara It is okay to take a loan for your desires, but a loan isn't free. It comes at a huge cost. If you forget that you cannot have everything in the present without leveraging your future, than you are setting yourself up for a debt trap. Consider the following way to tackle your desires
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Option 1.
Buying a new 7 lakh car almost completely on loan:
Down payment: 2,00,000
Interest rate: 10%
Loan Tenure: 84 months
Monthly EMI: 8,317
Total interest paid: 1,98,553
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Option 2.
Buy the same 7 lakh car, for 5 lakh from the used market, on half a loan.
Note: Based on my experience, you can get less than 2 year old model, less than 15,000km driven, for 25% less in a used car market. That car is as good as new on paper.
Down payment: 2,50,000
Interest rate: 10%
Loan Tenure: 84 months or 36 months
Monthly EMI: 4,151 or 8,067
Total Interest paid: 98,625 or 40, 405
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You save atleast 1 to 1.5 lakhs. That is as good as getting a return of 10-15% from your market investmenets, and its tax free!
This allows you that awesome trip to Thailand without any major loan, further saving you 10 - 15% more.
Add to that the fact that a new car depreciates a lot more in the first 2 years, than a used car in the next 2 years. That is 5% more savings.
Money saved, is money earned.
How this helps you avoid a debt trap? A debt trap starts when you take too much credit than you can afford, while forgetting your future needs! You end up always paying interests rather than earning interest. Because that means that you are not earning back the cost of your loans.
This money that you save here can be put in the pool for a house or your children's education, where the principal amount will be much higher and hence the cost! by saving bits of money on these smaller needs, you can save a lot on the bigger ones. Put this money in a long term growth option, which can easily give you 5% more interest than what you would otherwise be paying here. In the long term, you will end up earning back the cost of your loan, which can be used for the bigger goals or even buying a new car when you sell this one.
This is the highest gain you can take from any investment by such a dumb logic.
What will stop you from doing this:
- used cars are a big risk. Which they are not. Many used car brands offer warranty, and with a knowledgeable friend or mechanic, it is easy to find a good one.
- used cars dont have the same social status. Well, if they arent, do remember that you are losing almost 3 - 4 lakhs ( cost of buying a new one and cost of the loan) on a social fear that lasts for upto 6 months. Think about what you will tell your kids, that you couldnt prioritise their education over what you neighbours or relatives thought of you?!
- added effort and time. Well, you have to give it something if you wana save something. from my logic, this is the most money you can make (by saving) in the given time and effort.
P.S. Hidden benefit: you wont have to go through your boss's bullshit everyday, as you will have much less financial pressure on your head. That alone leads to better performance and better job changes, well, you get the picture?
