Your dream to buy a shiny new car hinges on the money you are able to save and the equated monthly installments (EMIs) that you are ready to pay. However, what most people don’t realise is that investing in mutual fund via systematic investment plans (SIP) can help you buy that car of yours and more!
This means that if you want to buy this car with a car loan, you will get a loan of around Rs 4.5 lakh. Banks usually finance only up to 80% of the total value of the car. The RTO, taxes and insurance money has to be coughed up by the buyer.
Simply put, roughly Rs 2 lakh will have to be funded by the car buyer if the decision is to take car loan from a bank.
For a five year car loan at an interest rate of 10.5% per annum, your monthly EMI on this car loan for Rs 4.5 lakh loan would come to be around Rs 10,500 per month.
This means that for a loan of Rs 4.5 lakh, the car buyer would end up paying Rs 6,30,000 to the bank at the end of five years of car loan repayment. The total cost of the car would also jump from Rs 8,37,000 (approx).
However, a little bit of forward thinking can not only help you save this interest but do a lot more.
Here’s how:
Buying a car is not a quick decision for most buyers and one must plan ahead.
Since you harbour a dream to buy a car, one should start planning early. The car loan repayment is a maximum of five-year process, we will take five-years as the base case scenario.
Also, as the monthly EMI on the car mentioned above is coming to Rs 10,500, we shall take this as a monthly investment target in an SIP.
Now, investing Rs 10,000 each month of a period of five years alone would help you save a principle amount of Rs 6 lakh! However, since we are talking about investing in mutual funds via SIPs, an equity mutual fund averaging around 10% return would increase your savings to Rs 7.8 lakh at the end of five years!
With Rs 7.8 lakh, you cannot only buy the car with no bank loan but also end up saving Rs 1.2 lakh (approx)! (Rs 7.8 lakh minus Rs 6.57 lakh).
With this money, you can also have the option of buying a more expensive car!
Cars are one of the most involving forms of machinery. They can fill the user with joy and can be used to experience some adrenaline rush as well. For the very reasons, enthusiasts want to buy more and more cars. Also, those who are not a part of the automotive culture, desire to get a car home as it cuts off out the hassle of travelling via public transport. Since buying a car holds an aspirational value in India, people often plan and save for years before buying one. However, while buying a car, there’s one question that pops up in everyone’s mind – Should we get it financed or pay the amount in full? To find out the answer, we came across a video from the YouTube channel of MyCarHelpline.