Loan for a Scooter

Long ago when Bajaj Auto was synonymous with scooters and vice versa, I was doing a job in sales. I wanted to buy a scooter but did not have enough money to buy it cash down (around 22000 INR in those days). I approached a Bajaj dealer and they were willing to give me a loan though Bajaj auto finance limited. I am not sure how much was the down payment I was supposed to make but I was short by Rs 1000/- in down payment. So after a lot of deliberations I approached my father and requested him to give me a loan of Rs 1000/- that will help me in putting the down payment for the scooter. My father was based in Mumbai in those days and after about a week or so I received a letter from him. He mentioned that he is very proud of me that I have decided to buy a scooter and will be paying for it myself, but he also mentioned that he is very surprised that when I don’t even have money for down payment how am I planning to put petrol in the scooter. He clearly mentioned that till I have enough money to not only put the down payment plus have a minimum of 3 months of EMI payment with me saved in a bank I should not go ahead with the purchase.

Needless to say I was very disappointed but since I did not have the complete amount for down payment I had no option but to wait. One of my uncles came forward to help me and loaned me 1000/- Rs that I was short of. (My salary in those good old days was around 5000/- month).

I got the scooter with help of this personal loan from my uncle and from Bajaj auto finance and brought the scooter home. But then started the real lesson in life, since I had to pay for petrol as well as the EMI for the first few months I was unable to return the 1000/- Rs loan taken from my uncle. This kind of opened my eyes and was my first lesson in personal finance. My father is now retired and lives in his house in NCR. Both my parents have always been very frugal with money as we were a large family and only my father and uncle were the earning members.

I guess these early lessons have helped me till today and have helped shape my money personality. I guess one of the biggest strengths we enjoy as a country is our healthy savings rate of 20+% compared to negative savings rate in some of the developed economy.

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Now that we have worked on how to stream line the bills let us look at impact of non payment of some of the bills.

Bills can be divided mainly in 2 categories:

Loan Payments

Non Loan Payments

1. Loan Payments: CC, Car, Home loan, personal loan etc.
2. Non Loan Payments: Rent, insurance, utility bills etc.

Your first priority should always be paying the loans as non payment of loans can lead to serious implications. Now a days all lenders report about your payment habits to CIBIL which keeps a track of your payment habits. You can read more about the same here.

Some of the loans are very costly e.g. credit cards and personal loans. But still if you are tight on money and are going through a bad phase like job loss or some other financial problem and you have to take a call between say a credit card payment or a home loan payment you can look at it 2 ways:

1.Interest rate: Here Credit cards will win hands down as they charge almost 4 times per annum compared to a home loan. So if your aim is to save on interest payments then make the payment for your credit card first.

2. Security: You can also look at the loan whether it is secured loan or not, e.g your home loan and car loan would be secure loans and the lender is within his right to take possession of your house or car if you default on the same.

So if your aim is to save interest then this will be your priority to pay:

1. CC
2. Car
3. Home Loan
4. PL
5. Others

But if you want to save your house this will be your priority:

1. HL
2. CC
3. Car loan
4. Personal loan

I keep cc loans above car loans is because if you can not afford to pay your credit cards you better sell your car and start taking auto/local transport. As this way you will get some cash and will be able to pay the costly credit card loans.

Personal loans are not secured and the lender can not take any of your possessions due to your default on your loan. (This does not mean they will not try to threaten you with goons etc.)

But we should not forget that each one of ours situation and priorities will be different and we may choose to pay different bills first in times of hardships. The above points mentioned by me are only indicative and should be thoroughly researched and debated considering your own personal situation before taking any step during time of hardships.

Please remember the prioritization of bill payments is only in times of hardships like job loss or medical emergency when a lot of money needs to be diverted towards hospitalization ( assuming one is uninsured or underinsured for health).

In all other times when you have adequate money you should not forget to pay your bills and keep a hawks eye on them for their due date and always make the payment on time.

Thanks for reading. Do leave a comment.