Owning a car is a cherished aspiration for many Indians. For some, it is a necessity; for others, it offers convenience or serves as a status symbol. Regardless of the reason, most people aspire to own at least one car in their lifetime. However, with advancements in technology, cars are becoming more sophisticated—and more expensive. Even a mid-range car now costs between Rs 8 lakh and Rs 10 lakh. Given this high cost, many people turn to car loans to finance their purchases. But is this the best financial decision?
A car is a depreciating asset—its value decreases over time. This fact alone makes it wise to minimize the amount of interest paid on a car loan. One way to achieve this is by making a larger down payment. However, an alternative and potentially more financially prudent approach is to plan your car purchase in advance and invest the amount you would have paid as an EMI (Equated Monthly Installment) into a systematic investment plan (SIP) instead.
Let’s consider a scenario where you plan to take a car loan of Rs 12 lakh for seven years, with an EMI of Rs 19,921. Instead of going straight for the loan, what if you invest that Rs 19,921 every month in a SIP? Assuming an expected annual return of 12% from an equity mutual fund, let’s explore how this strategy can help you achieve your goal.
To understand the financial advantage, let’s break down the numbers:
If you opt for a loan, you will end up paying a total of Rs 16,73,399, including Rs 4,73,399 as interest.
Now, let’s look at the alternative scenario:
By choosing to invest in a SIP instead of opting for a car loan, your investment would grow to an estimated Rs 12,31,812 in just four years. This is slightly more than the Rs 12 lakh you initially intended to borrow.
Here’s the breakdown of savings:
By opting to invest in a SIP rather than taking out a car loan, you could potentially save Rs 7,17,191. This approach not only avoids the burden of paying interest but also empowers you to accumulate wealth. The car can still be yours—without the financial strain of a loan. This method of financial planning allows you to enjoy the benefits of car ownership while making a smart, wealth-building decision.
In essence, by planning ahead and leveraging the power of SIPs, you can drive the car of your dreams and keep your financial future on track.
Dreaming of financial freedom? Use our Online SIP Calculator to see how regular investments can add up to grow wealth. Take the first step towards your goals. Calculate now!
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
Published on: Aug 26, 2024, 5:20 PM IST
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