Confused on the type of loan!!

POSTED BY Red Devil ON January 27, 2013 1:32 pm COMMENTS (9)

Hello friends,

I am a professional in my late 20s. I plan to buy a new car and also have plans to extend my house. I already have a home loan and pay 20k EMI for a 20 yr loan. For the car and home extension plans, I would need ~ 9 Lakhs. On checking with the SBI officials, I have two options:

1. Go for a car loan at 10.50%, emi (1686/ lakh) = Rs. 15174 for 7 yrs

2. Opt for a special top up at 11%, emi (1032/ lakh) = Rs. 9288 for 20 yrs

I have few financial commitments for the next 2.5-3 years including my marriage, gold loans amounting to 3 lakhs etc. Thereafter I will be able to free up a fixed amount of money around 10k/ month and could contribute towards the loan EMIs.

Could you please advice on which loan should I opt for and any other way to ease my financial commitments. Thanks for reading my query.


9 replies on this article “Confused on the type of loan!!”

  1. bemoneyaware says:

    It’s important to remember to first ask yourself “do I really need this?
    Not all assets are created equally. When you purchase something, it’s usually an appreciating asset or a depreciating asset or a liability. During your financial life, you want to purchase as many appreciating assets as possible as these are purchases which will gain in value over time. On the other hand, you also want to purchase depreciating assets only when it’s necessary since these items will lose value over time

    The purchase of a home or improvement of home is considered an appreciating asset.While it’s certainly true that the value of homes can fall over short periods of time, the general assumption is that a home will increase in value over long periods. Since a home will general increase in value over time, it often makes sense to purchase/improve one as you can actually make money by purchasing and holding onto it.

    Cars is an example of depreciating asset. These are usually “wants” and not “needs” of the person buying them, but they lose a huge portion of their value the instant that they are purchased. Cars can lose 20% or more the instant that they are purchased

    To get the most out of a depreciating asset, you need to focus on what is needed rather than what you may want. When you go to purchase a car, there are a huge range of models and prices. You can spend a little or a lot depending on what you decide to buy. Learning to purchase only what you really need when buying a depreciating asset rather than what you might want will help you not waste money on these depreciating assets. In the example of the car, getting a good quality car with all the basics makes sense while avoiding all the fancy extras that may look good, but don’t make the car function any better.

    Conclusion: You need to prioritize, differentiate between needs and wants, enjoy but without flashy , extra bells and whistles!

  2. Dear Redevil, is there a need of car or a big car? If just the commuting is your problem, any 4-4.5L Rs. can do it for you with less expenses towards, fuel bills, lower maint. costs & low ins. prem.

    Even if I assume, you want to purchase a car for 8L Rs. price, just like Max Gain home loan, there is a CAR loan product also, named SBI Car Advantage from SBI.

    Please check it & inform me for your query.



    1. Red Devil says:

      Thanks Ashal….I will check that product and keep you posted.

  3. Dear Reddevil, let me understand your query again. You need to spend 9L Rs. on a car & for that you are asking for the choice between the two loan options.

    Am I correct?

    Please confirm.



    1. Red Devil says:

      Hi Ashal…I have some amount with me. So if I keep my home extension plans on hold, I would need ~ 6.5 – 7L for my car purchase. I hope this clears the confusion I caused.


  4. Dear Red Devil, do you really need that CAR? If i were in your position, I w’d go for only home extension & no Car. Rest already discussed by dear FFC.



    1. Red Devil says:

      Thanks Ashal…:) as always you are willing to help out others.

      I can delay the home extension plans as it is not urgent, but do really need the car since my work place is around 30 kms from home and hence I cover ~ 60kms per day and travelling can be quite a pain when I have to stretch my work timings. I believe my company has some scheme where they offer tax benefits on fuel bills, need to confirm it though.

      In that case, which loan would be better? Does opting for the top up loan look beneficial due to its lower EMIs and after 3 years I can probably reduce the principal significantly by paying a larger EMI. Or is the car loan beneficial purely due to its 0.50 interest rate difference with respect to the top up loan.


  5. 9 lacs is for both car + home extension. So both cannot be covered by the car loan!

    A car is the biggest assets which continuously depreciates in value (15% a year).

    Have a look at this calculator to see what I mean

    You could extend your home with the top-up option if that is necessary for your marriage. You can consider deferring the car purchase after taking care of your other debts.
    Why not buy a used car with a suitable used car loan from SBI? Or simply save up money and pay for it when you have enough?

    Getting rid of existing debts (except home loan) and minimizing new debt should be goal

    1. Red Devil says:

      Thanks for ur quick reply.

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