One of my friend (Akshay) asked if he can buy car on Loan?
Car value = 10 lacs
Down payment = 1 lac
Loan = 9lacs
Monthly EMI = Rs 20,000 for 5 years
Akshay asked if his decision is right in buying car in above calculated approach
I said, You are buying a liability on another liability
Akshay – How, please explain.
I – Car is a liability, we need to keep spending on car monthly for fuel and maintenance and its value decreases over time.
Akshay – Acha Ok.
I – And you are buying a car (liability) with a loan (another liability), which is not a good approach.
Akshay – Ok, but my wife started working last month and she is earning 20-25k approx monthly and we thought to buy car with her salary.
I – So, when your income increases, you buy things which you dont need on loan?
Akshay – No, but we want Caaaaar.
I – How much will be your daily usage of car?
Akshay – We will not use it daily, may be monthly twice or thrice during weekends or holidays.
I – Ohh, then you can make use of cabs like Ola or Uber.
Akshay – Yes; but it doesnt give feel of owning a car.
I – Oh, I think you dont know, until loan is cleared CAR will not be yours’.
Akshay – Hmm yes, but it will be with us 🙂
I – You are getting emotional.
Akshay – Please tell me if my logic is correct, shall I buy car with calculations mentioned above?
I – As I said earlier, it is not a wise approach to buy car on loan. By the way, bank will not give loan to your wife as she just started earning and also nobody will give loan upto 80-90% of income going as EMI.
Akshay – I thought about it, so what I will do is, I will take loan on my name and pay emi from my account and will adjust with my wife salary.
I – Ok, what if your wife stops working after couple of years?
Akshay – Why will she stop working?
I – Consider for suppose
Akshay – It may become tight for me to pay EMI, I dont have much emergency fund also.
I – Hmm…thats risky.
Akshay – Please tell me if my decision is fine?
I – I have been telling since beginning, that this decision is not wise, but what are you expecting from me?
Akshay – I want you to tell me that my decision is right.
I – Then; why are you asking me if you have pre-decided?
Akshay – I want to confirm with you.
I – I can give opinion if you can listen open-mindedly. If you have pre-decided then whatever I say doesnt’ matter to you.
Above discussion happend about 8 to 9 months ago with one of my friend (name has been changed for privacy reasons) and no conversation happend after that
Today he pinged me and asked if we can meet over coffee and when we met;
Mr. Akshay looked unusual and was uncontrollable with his emotions. Upon discussing with him, following is the summary,
He bought the car on the loan, then after 4 months his wife had to stop working as it became difficult for her to manage work at office and son (2yrs old) at home as Akshay’s mother went back to their hometown who used to take care of his little son.
Akshay, in his words whatever you told became reality. After my left to hometown, We have decided and asked my wife to stop working and car EMI became a big burden now. I thought of informing you at that time itself but I did’nt know how to show my face to you, all these days that’s why I did not communicate to you.
Today I thought, Kaustubh was able to analyse and tried to advice me not to buy car at that time itself but I did’nt listen to him.
I dont know how many more mistakes i m doing which I did’nt ever thought of, so I kept my ego, shyness aside and messaged you. Now, I want your advice on all my financials and tell me what actions should I take to ease out my financial burden.
Kaustubh – My Final words – Financial Planning is all about managing RISK and ensuring we achieve our Dreams and Aspirations by not falling as trap to RISK by avoiding / mitigating it
Long real life story, please read at your convenience. Hope you all learn out of it 👆🏾👆🏾👆🏾👆🏾
Artharthi 