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Should I buy a car on loan?

Dhirendra Kumar highlights the benefits of doing a reverse EMI to buy a car on loan

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Would you suggest buying a car on loan? If so, how much should my down payment be?
- Shipra

It depends on whether you can do without a car for a while and start saving and investing in a manner that you can buy a car. It is actually a reverse EMI instead of borrowing money to buy a car today. In other words, if you can postpone buying a car, then start investing as if you are paying the EMI and accumulate the money and appreciation.

It comes with two advantages - it is imminently possible because if you are living in any of the leading cities in India, you can actually enjoy a car without buying a car with Ola and Uber around. You don't have to necessarily buy a car. But if there is an urgent need, then, by all means, go and take a loan and buy it. But if there isn't any urgent requirement, then consider this reverse EMI structure.

For everything that you can buy based on borrowing, think whether it is for consumption or it is an asset. So, I would say that borrowing money is justified only in two cases - one is emergency where you land in a hospital and you need money and you have to borrow it on the credit card or from your friends. The other is a home loan where you are buying an asset which will appreciate, help you save rent and get you a tax break. There is no third kind of borrowing which is justifiable.

One should try and avoid or configure one's consumption of spending so that one never has to borrow. Some borrowings you should never do, as no investments ever generate the kind of return and interest that you incur on a credit card loan.