Car Loan – When my decision met strong opposition!
The story begins with facing the opposition, ends with surviving the opposition. I expressed the desire to buy a car for my personal use (read: weekend shopping sojourns in the nearby malls) which was met with great opposition But I was determined and zeroed in on Chevrolet Spark (Courtesy: TV commercials during my favourite serials) and for its pocket friendly pricing. I went ahead with my decision, of course after convincing my folks (read: husband and brother).
Admittedly it was a near impulse purchase and not at all a well thought decision, neither with respect to selection of the car nor financing of the car. No proper research was done on this purchase, as it is I am not in the habit of doing any research before making any purchase.
Car purchase was no exception Coming back to the CAR the colour was finalized in no time and I was ready to write the cheque after some negotiations with dynamic car dealer. But was interrupted by my brother Prabhat, a finance professional, who advised me against making the full payment and go for loan instead. He said, Go for car loan and take the car for mere Rs. 56,000 and get the balance financed from HDFC bank.
I quipped, But I do not want to get into the loan rigmarole He said, It is very easy as your dealer has tie-up with HDFC Bank and it will be arranged in no time. As ever I gave into my brother’s advice. Initial discussion with bank’s representative revealed that I will have to shell out nearly Rs. 7,765 every month for 5 years.
I was happy getting a car by only paying Rs. 56,000 for now. Finally the loan was tied-up and car arrived in few days time. My joy knew no bounds as having a personal car made life much more enjoyable! First month flew now came the time of EMI payment. The process turned out to be quite smooth for the first year as I was quite excited about my purchase.
Came second year dolling out nearly Rs. 8000 month after month became painful. It was the time when I had just joined Apnapaisa March 2008. For the first time in my life I came to know the importance of doing comparison while making any purchase particularly if it involved a loan.
To my horror I came to know that for a Rs. 3,22,000 loan I will end up paying over Rs. 5 lacs after completion of 5 years. Many more months went by the thought took a back seat and I was fine with my EMIs. Now I had almost completed one year in ApnaPaisa and importance of properly investing my money invaded my left brain. For the first time I wondered that how much money I will make if I invest those Rs. 8000 every month.
Once again I started thinking about prepaying the loan but outstanding was pretty big. Till now I had not even paid interest part fully nearly Rs. 2,00,000 was outstanding. The amount was big, and it was earning interest of nearly 7.5%. Prepaying the car loan meant parting with my fixed deposit of Rs. 2 lacs and on top of it paying a penalty of 4%. And I did not want to part with my precious FD.
I announced to my folks that when loan will come down to Rs. 1 lac I will prepay my loan. Another year went by but my loan was no where close to reaching Rs. 1 lac. Now I was amidst so many finance professionals at Apnapaisa who were advising people day in and out about investing money effectively and here I was earning 7.5% interest and paying 12.5% interest.
Still parting with Rs. 2 lacs was something my husband was dead against. He argued, You will pay only Rs. 23,000 more in interest for the remaining part of the loan so what is the point? He added, Let the EMI go for few more months, Once again I was convinced but not fully the dilemma persisted.
One fine morning I announced, come first Jan 2011 and I will close the loan. This time my determination level was higher but the amount outstanding was still Rs. 1,48,000 which was a dampener. But now I was out of the dilemma.
CAR LOAN Not any many more! I prepaid the car loan on Jan 7 2011, and felt a big burden was off me. Now I was ready to invest cash surplus of Rs. 7765 every month.
Do you think it was a financially prudent decision? I think so!,What say folks?
Expert take – Harsh Roongta, Former CEO, Apnapaisa.com
By breaking her fixed deposit of Rs. 1,48,000 kept @ 8%, the customer would have received Rs. 6700 per month for 24 months as against the EMI of Rs. 7765 she was going to pay for 24 months. She made a saving of good Rs. 1100 per month for 24 months totaling the amount to Rs. 26000 approx. which is quite substantial.
A financially prudent decision.