Buy a luxury car without a loan! Here’s how

With fractional ownership, you won’t have to take a loan for your car. Instead, you can easily pay for it with the returns from your investment.

A luxury car is a key marker of one’s financial and social status. As someone who is doing well in life, you would naturally want to communicate your status with an elegant luxury car. But if a car loan is part of the plan, hold on. There are better options to finance your aspirations which allow you to optimise your resources and save your hard-earned money.

Financing Your Car with a Bank Loan

Let’s say you have zeroed in on a BMW X1 as the vehicle of choice. The petrol version of the SUV is available at an on-road price of around Rs 45 lakh in India. Assuming you have accumulated a fund of Rs 25 lakh, you still need a loan of Rs 20 lakh to finance the purchase.

With interest rates ranging from 7-14%, car loans are easily available from banks. Assuming you take a loan of Rs 20 lakh at 7% interest, you will have to pay back Rs 23.76 lakh over a five-year period, including Rs 3.76 lakh as interest. Plus, you may have to pay a one-time processing fee of around Rs 5,000 on the loan. That’s a lot of money to pay for an asset which will depreciate the minute you drive out of the showroom!

Basics of Fractional Ownership

With fractional ownership, you won’t have to take a loan for your car. Instead, you can easily pay for it with the returns from your investment.

Fractional ownership in pre-leased commercial property is a relatively new mode of investment offering attractive interest rates and stable returns. Commercial real estate investing in India has traditionally been dominated by big companies and institutions who can afford to pay the crores of rupees necessary to invest in high-value commercial realty. The fractional ownership model aims to alter this trend by dividing the price of the property into smaller units (‘fractions’) to make them affordable to retail investors.

In recent years, fractional ownership has acquired a reputation as a low-risk, high-return investment with assured rental income and capital appreciation. With an average rental yield of 8-12%, and a capital appreciation rate of anything between 5% and 10% per annum, it is quickly emerging as one of the most attractive asset classes for investors.

Buying a Luxury Car through Fractional Assets

Let’s say that you want to buy a BMW X1 through the fractional ownership route. You can invest the same amount of money (Rs 25 lakh) on a piece of commercial property for five years. As the asset is pre-leased, you will start earning rental income of Rs 2.25 lakh per annum (at 9% rental yield) from the first year itself. What’s more, the rent will increase by 15% every three years as per the contract with the tenant.

In the meanwhile, the value of your investment will also increase at a rate of 5-10% annually. Assuming that capital appreciation takes place at a modest rate of 7% per annum, the value of your investment will grow to Rs 35.06 lakh, which means an increase of Rs 10.06 lakh in a five-year period. The income from rent (Rs 2.25 lakh per year x 5 years) will put an additional Rs 11.25 lakh in your kitty. Therefore, you will have a total of Rs 46.31 lakh at your disposal which can easily pay for the car with change to spare.

As you can see, the fractional ownership route not only managed to save you Rs 20 lakh on the principal amount but also Rs 3.76 lakh in interest and one-time processing fees. The only inconvenience? Delaying your purchase by five years to allow the magic of fractional ownership to work for you.

Stability and Liquidity

Leading fractional ownership platforms only deal in pre-leased commercial properties which allow investors to earn rentals from the first month itself. With tenants locked in for a pre-agreed period (e.g., five/seven years), you can expect capital appreciation as well as assured rental income on your investment. Besides attractive and stable returns, fractional properties are liquid real estate assets where you can cash out anytime you want. Be sure to include it among your financing options the next time you plan to buy a luxury four-wheeler!

(By Aankush Ahuja, Director of Business Development and Investments, hBits.)

Disclaimer: These are the personal views of the author. Please consult your financial advisor while making any investment.