how to make you spend more?

A friend called up to ask ‘Why do i have to pay a higher interest RATE for a second hand car than for a NEW car?’

How much is the difference? about 3-4% p.a. for 4 years… that you lose most of the advantage that you got in the price while buying.

Wow.  Why does this happen?

Simply because the Big Auto and the Big Finance can get some extra money out of you. Simple.

Most people buy a car that they can afford. HR of companies are hand in glove – and they suddenly tell you

“Mr. K you are entitled to buy a car with an EMI of Rs. 33, 500 per month”

Fantastic. Mr and Mrs. K, perhaps with kids in tow go to a new car showroom armed with a lot of research.

He shows you a new car with an EMI of Rs. 34,000 pm. Mr. K is happy, but he also decides to look at a second hand car.

First his kids. Then his wife. Then the salesman. All are aghast at the thought that a Snr. Vice President (who needs all these props for his self confidence!) can even think of a second hand car. How Gross!

However, the reluctant salesman says …Sir a pre used car will cost you a little less..but not much sir….no sir car will be good, BUT sir…..

What happens is that the salesman has a different target – ONLY NEW CARS. So he will tell you sir only a 2-3k saving…’Why do you want to buy a second hand car?’….

So a whole program is created to make you buy a NEW car.


The guy who is buying a new car is a great guy. The guy who is buying a second car, is NORMALLY a guy who:

a) cannot AFFORD a new car (therefore he is buying a 2nd hand car)

b) he is a lesser risk worthy person (obvious is it not?)

Now if you are a person with a net-worth of Rs. 25 crores (your demat account has equity shares worth Rs. 18 crores), you are a HNI Customer (you do mutual fund SIP worth Rs. 300,000 pm) and your salary account is with the same bank, but you love a bargain, so you are buying a Merc S class which is 4500 km old, sorry the bank cannot connect these facts.

The guy at the counter will treat you like a second rate customer. Why?

Because you are buying a second hand car. So what that you are borrowing at 14% p.a. because your asset portfolio is likely to grow at 20% and hence u do not want to disturb it?

Well, I know a guy who bought a ‘Pre-used Merc’….now i know somebody trying to buy a high end VW.

The first guy laughed at the bank and paid a cheque, saying ‘go to hell’

Not sure what the second person is planning to do.

Wake up bankers all clients cannot be classified in buckets.

Ability to spend NEED not mean Propensity to spend. At least not after a particular threshold.

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13 Responses to “how to make you spend more?”

  1. Sneering at the thought of using second hand things is a propaganda well spread in our society Subra Sir. Haggling for veggies is not look down upon but for a car is. What irony.

  2. Who sold that Merc after just 4500 km? What is he driving now? He is the biggest jerk.
    Nothing wrong with buying a new car – especially if you dont know much about maintaining cars – if something wrong with the car you can get it fixed for free atleast during the initial years.
    For a second hand car God knows how much maintenance trouble will it give. Unless you know the owner, what kind of driver he is and why he is selling the car etc, why go for a second hand.

  3. Subrabhai, I drive a tiny second hand car,just right for Andheri Kurla Rd., and my local repair shops Balanbhai and Chandranbhai do excellent work.

    Loved the end line-what a killer– ability to spend does not mean propensity to spend.. 🙂

  4. Subrabhai, I drive a tiny second hand car,just right for Andheri Kurla Rd., and my local repair shops Balanbhai and Chandranbhai do excellent work.

    Loved the end line-what a killer– ability to spend does not mean propensity to spend.. 🙂

  5. I had 4 Lakhs of cash to spare on car.

    I had following choices
    (1) Buy a 8L sedan on half down payment and half loan
    (2) Buy a New 4L car
    (3) Buy a 8L used car for price of 4L (bigger the car bigger deprecation).

    In the end chose option 2 and bought a Maruti hatch on 100% down payment. Though would admit that I had taken interest free loan of 75K from my office.

    If I had chosen option 1 or 3, it would have certainly given me some ego boost but don’t think its worth it.

    I don’t know but I feel buying a car on Huge EMI’s(>75%) gives a false sense of affordability.

  6. Ability to spend NEED not mean Propensity to spend….So True.

  7. Shirish and Mira

    when you see people earning Rs. 5-6 L buying a car and people with net-worth of Rs. 20 crores (liquid, over and above one residential house) buying a second hand Maruti 800 – to help in carting things required for a bhajan/ kirtan, you realise that one is spending beyond his means, the other guy just could not care. Also when you see many communities of people – Punjabi, Sindhi, Gujarati, Tamilians, Maharashtrian, … tend to form some opinions based on caste and language too!

    But it is absolutely true….and ONLY such people realise that spending does not give you pleasure. The feel ‘good’ of knowing that you can buy it is normally enough to make people happy.

  8. I am a NRI customer and recently wanted a credit card from HDFC bank. The bank offered me a credit limit max of 3% of my total investment relationship with the same bank. It insists on issuing the card on collateral basis linked with my FD. I wanted the cc with more limit with no security as it issued to resident indians.

    The bank refused. I was shell shocked that my investments would not matter to the Indian bank while issuing the credit card. In our country, I still feel hurt that credit seeking customer on his/her own is always looked down. With no investments in foreign banks, they have issued me a credit card with a credit limit of 1 million INR.

  9. Lovely article Subraji.

    This clearly shows difference between aspitation/willingness to spend and ability to spend.

  10. Lovely article Subraji.
    This clearly shows difference between aspiration/willingness to spend and ability to spend.

  11. Well atleast most of the poeple talking here bought the car and are driving it.
    There are a few sample cases who buy a new car and keep it in the shed and never take it out.
    If they thought they were saving Rs. 5000 per month on petrol, they could have not just bought the car and saved 5 laks outright.

  12. @krish.
    this is because as an NRI,you are a flight risk. lots of software engineers for example, ran up huge unsecured debts and upped and took off the US in the dotcom boom leaving banks holding invalid addresses etc.
    i would commend the bank for prudent credit risk assessment.

  13. Bala,

    I am one of those guy in that category, But I was forced to buy the car(spouse pressure) i didnt have choice, I am unable to use now because my work location is kinda faroff and too streesful to drive on those road because of traffic congestion and also most of the time i work from Home following middle east work days coz of which end up working on saturday and sunday leaving friday as holiday which is of no use to me.

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