Upside Down on investments in India


What’s being upside down on a car? Or any “investment” for that matter?. Its when you owe more on the car/ investment than its market value. Sometimes its also called being underwater on a loan. Is this possible? I used to think this was restricted to real estate in a lot of cases, or on high-end cars, that depreciate like crazy. In fact, there’s a whole YouTube channel built on this concept by this gent called Tyler Hoover. The car channels name is Hoovies Garage. Go check them out. Coming back to our current issue. But clearly, life has outstanding examples for us to find everywhere

Upside down on the “Peoples” car of India?
I came across this ad on OLX. The ad is for a 2019 Tata Nano. It’s the top of the line AMT ( Automatic Manual transmission) with under 2500 kms on the odometer. Let me reproduce the ad for you

“White Tata Nano Twist driven only 2500 kms in mint condition (only 3 months old) on EMIs of 5.5k each totalling 2.65L Downpayment made of 1.15L. Selling in order to upgrade car. Price is 3.5L non-negotiable (or 70k and all EMIs transfer). Only interested parties contact pls or reply to post here. Have not added number here to avoid unnecessary calls. Car location is Dona Paula and Panjim passing. throughout week, during working hours(9-6) car will be available at mapusa. Any inconveniences caused is regretted.”

So lets break it down from here

The man has bought a car 3 months ago. I’m sure he had taken a test drive and thought it appropriate. And now he’s changed his mind and wants to upgrade. Fair enough. It’s a free country. But how much has it cost him so far?

Now lets see what a Tata Nano xta costs brand new car. Ex showroom 3,43,288 INR.

So here’s the breakup

Ex showroom : 3,43,288

RTO: 33,396

Insurance: 26,208 includes 3 years third party cover

Depot Charges: 3500

On Road price: 4,06,392

He has paid INR 1.15L as down payment so he’s outstanding loan should be for 2,91,392.

But this number does not add up he’s said that the outstanding loan including all EMIs is for 2.65L. That’s 48 EMIs or a four-year loan tenure. Now let’s see if we can figure out what the loan amount would have been. At an interest rate of 10.1% as given by HDFC bank the loan amount will be around 2.15L.

So the actual price he’s paid for the car should be. 1.15L + 2.15L= 3.3L which is a damn decent price for the car. He’s gotten almost 70,000 INR discount from the list price. That, according to me, is a fantastic deal. But why did he get such a great deal? And if he’s gotten that good a deal, clearly he’s trying to make a profit at his valuation of 3.5L. Effectively, anyone buying the car at his valuation is paying him a premium to have owned this car. I like how he’s attributed the cost of interest to what he’s valuing the car at. Very sneaky, If your paying upfront for the car, interest costs should be completely negated

Coming to what the car is worth?

So he’s financed the car and now wants to upgrade within three months. Boy! how I am glad i am not in his position. Let’s break this down from any car buyers perspective and do what any car buyer would do. I’ll go to and check the value of a used Nano on road. Good condition 2019 model with 2500 Kms valuation is around 3 lakh rupees. Now, this is the theoretical price from the IBB guys. Considering the whole Nano fiasco, a realizable price would be even lower. Nano production has been close to 0 for the last several months. So in all likelihood, the car has sat on a lot somewhere for a long time. So considering wear and tear from sitting it should ideally get devalued. With the car being nearly discontinued it further hurts the value. My best guess is he’s not going to get more than INR 2L for the car from any sane person who can run the numbers.

From the IBB value and with the price he has paid of the car he’s lost at least 30K from the invoiced value.

Lets for a second, consider my “expert opinion” valuing the vehicle at 2 L. If he does find that mark he’s lost 3.3-2L that’s effectively 1.3L in 3 months on a car. Secondly, if anyone is going to want to buy the car he will want it without encumbrance. That means our man has to cough up the 2.15L to resolve the bank loan after which he might get 2L in value for the car. More hassle, more running around lower value.  Effectively he will be paying someone else an additional 15 K to take the car off of his hands. This does not include any pre-payment penalty for the loan.

These calculations are based on an EMI of 5.5 K into 48 installments the total value of the EMIs being INR 2.65L over 4 years. This does not consider the loan amount being INR2.65L. If the loan is for INR2.65L. He’s losing close to 2L on this car at my valuation.

Why I should be considered an expert on Nanos?

This February I purchased a 2-year-old Nano in the same XTA trim with 15,000 kms on the odo for 1.4L, that’s how fast they depreciated.

So what should you do?

Financing a car, a house a lot of things in life can make you lose your shirt. Run the numbers carefully with regard to transactions that are not easily reversible be doubly sure of pulling the trigger. For example, putting money in your savings account is an easily reversible transaction. But buying a house is not an easily reversible transaction. If you want to get out of it, you’ll have to find a new buyer, negotiate a price and then pay the legal fees for the transfer. Add financing on top of that and you have to deal with the bank to clear the lien on the house, which can take additional time. Another reason why I don’t like to finance things. Very often the EMI looks affordable, but it eats into your wealth-generating capacity like a termite. Unless I have the cash/equivalent to buy something I don’t.

If you’re looking out for a car now is an excellent time to buy one. But like I’ve said in the past, a car is not an asset. Be very clear on this. It’s a liability that you are paying the price for in depreciation for owning. The Auto industry has been in a slump for the last several months and so is throwing goodies and discounts at people like crazy. But remember such pangs can also indicate a change in technology. Its possible that a lot of people are waiting for affordable electrics. In that case, your shiny new fossil burner might not be so valuable even 3-5 years down the line. Factor the hit in the value of the vehicle and then buy one.

Another tip you can consider is buying only what you need. Do you really need a massive SUV for the city? How much does insurance cost? How often do I have to fuel up? These are questions you need to ask yourself before going all shiny-eyed into the lair of the local car dealership. Hmm, maybe I should write an article on how to choose or buy a vehicle???

And finally, if you want to save money, there’s also a great market out there for second-hand cars. Use it. Let the other person take the hit of depreciation. Don’t let the psychology of wanting to own something new cause you so much financial grief. Take control of you own life.

Closing thoughts

I think a Tata Nano XTA is an excellent car for anyone living in the city to buy. The insurance is decently cheap. Parts are even cheaper. You can park almost anywhere (those tight spots nobody can fit into). The convenience of an automatic and you can more than keep up with city traffic. Oh, and did I mention that it’s obnoxiously fuel-efficient. Comes with most creature comforts. Power steering, Bluetooth stereo with 4 speakers, a chiller of an ac and is surprisingly spacious inside. If you get a chance to grab one at a ridiculous price go for it. I think the car will more than pay for itself within a couple of years. Plus at that price point. I don’t really worry about bumps, scratches or anything else. It’s the perfect family runabout, at least for me.

Till then, ciao.

And may your poixe stay with you.

What has been your experience with investments and assets? Have you ever been upside down on any of your assets? How did you resolve the situation? Share your story and we can all learn from your experience.







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