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Am from India and planning to buy a house and a car. I have ~10L in my hand. House costs around 36L (Including Registration and other charges) and car cost around 11L (on-road price).

So paying down payment 5L each and taking both Car loan(6L with 8% interest for 7 yrs) and Home loan (30L with 6.80% interest for 7 yrs) is best OR paying full cash for car and taking home loan for(36L for 6.80% interest for 7 yrs) is best?

For both options, am planning to close the loan in 7-8 years with EMI of ~50k per month.

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  • How do you plan on paying for the car in full (11L) when you have only 10L on hand? Also, are you sure that you can borrow 36L to buy a house with nothing down at 6.8% interest? Just because you were quoted a 6.8% rate on buying a 36L house with 6L downpayment (so 30L loan) doesn't necessarily mean that the lender (bank) will be willing to loan you the full 36L (no downpayment) at 6.8% interest. The lender's risk is considerably more and the lender will likely demand a higher interest rate for a 36L loan on a 36L house. Oct 6, 2021 at 15:35
  • Plug various scenarios into a spreadsheet, and see which is cheaper.
    – RonJohn
    Oct 6, 2021 at 16:55
  • Maybe do a little frame challenge first. Are you really in a situation where you can afford to go into debt for both a car and a house? Can you do without a new car for some years? 7-8% interest rate is pretty heavy. That is the realm of the nominal long term return for equity and I would try to get that off pretty quickly
    – Manziel
    Oct 7, 2021 at 15:22
  • @DilipSarwate, I can manage extra 1-2L and thanks for the info. I'll talk with the bank representative.
    – Dhanapal
    Oct 9, 2021 at 10:06
  • @Manziel, Yes. Unfortunately I can’t avoid the car now.
    – Dhanapal
    Oct 9, 2021 at 10:07

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Mathematically, it would be best to have the lowest average interest rate, so having all debt at 6.8% would be better than having some at 6.8% and some at 8%.

However, there may be other ramifications that I do not know about that may change the scenario:

  • Can you get a loan for the full home amount without any additional charges? For example, in the US, on most mortgages you have to pay "Private Mortgage Insurance" if you borrow more than 80% of the home's value
  • Could you save on car insurance if you don't have a loan on the car?

It also seems odd (to me) that you are looking at a car that's roughly 1/3 of the value of the house. Maybe this is not uncommon where you're at, but this would be highly unusual in the US - either it's an incredibly expensive car or an incredibly cheap house. If it's the former, could you reduce your debt even further by buying a cheaper (but still reliable) car?

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  • Hello Stanley, Actually i'm coming from rural area where the land costs are little bit low. So, the house price also little bit low compare to the metro cities and In India cars are little bit expensive compare to US. I'll check with the bank about 100% finance and its charges if any.
    – Dhanapal
    Oct 9, 2021 at 10:11

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