Why is it beneficial to take a car loan even if you have cash? Know expert opinion – Times Bull
Car on Loan vs Cash: Nowadays, everyone’s dream is to have their own car. Nowadays, a car is not just a hobby but has become a necessary means, whether you have to go to office, drop children to school or go somewhere suddenly, the comfort and convenience of your car is different. The hassle of public transport ends. There is no fear of cab cancellation and time is also saved, but when it comes to buying a car, the biggest question is whether to pay the full amount or take a car loan.
Buying in cash or taking a loan?
Suppose you want to buy a car worth ₹ 15 lakh and you have the entire amount in savings. In such a situation there are two options. First, buy the car by paying the full amount in cash. Second, take a loan to buy a car and invest your savings elsewhere. At first glance, the cash option seems easy and relaxing because there will be no hassle of EMI. But is this the best approach?
What will happen if you take a loan?
If you take a loan for 5 years at 9% interest rate, the total interest will be approximately ₹3,68,252 and your monthly EMI will be ₹31,138. The total payment in 5 years will reach ₹18,68,252. Accordingly, the loan seems expensive because only ₹ 15 lakh has to be spent in cash. The interest rate depends on your CIBIL score.
advantage of buying in cash
You will not have to worry about EMI if you buy a car in cash. But if the same ₹ 15 lakh is invested in a 5-year fixed deposit (FD) at 6.75% interest, then on maturity this amount will become approximately ₹ 20,95,390. That means your savings will increase by about ₹ 5,95,390.
Know what is the expert’s opinion
According to certified financial planner Pooja Patel, the biggest mistake of the middle class is that they spend the entire amount on a car. In this way your liquidity gets drained and the money is invested in an asset whose value decreases with time. A car worth ₹15 lakh may be worth only ₹7 lakh after 5 years.
Smart planning and investment
Regarding this, Pooja Patel says that it is wise that the money should not just be spent but should also grow. For example, give ₹5 lakh down payment for a car worth ₹15 lakh and take a loan of ₹10 lakh. Invest this ₹10 lakh in a good equity mutual fund. You will have to pay about ₹ 2.45 lakh interest on the loan in 5 years, but if you get an average return of 12% from the investment, ₹ 10 lakh can turn into about ₹ 17.6 lakh. This means that even after repaying the loan, a profit of about ₹ 4.3 lakh can be saved.
Which option is better?
The total payment on the loan is ₹18,68,252, while the FD is yielding ₹20,95,390 on maturity. The reason for this is that interest on car loan is charged on reducing balance and your money grows through compounding on FD.
which decision is right
If you want mental peace and want to avoid EMI then it is better to buy in cash. But if you want to increase your savings and can make a proper plan, then taking a loan and investing is beneficial. Every person’s financial situation is different, so it is important to keep in mind your income, risk appetite and future needs while taking decisions.
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