SIP Investment vs Car Loan EMI: How you may save Rs 8.91 lakh on Rs 15 lakh, 7-year loan; know calculations

SIP Investment vs Car Loan: Buying a car is no more luxury! It is necessity for most people. The majority of car buyers depends on car loans. Car buyers make a down payment and take the loan for the rest of the amount. Car loans can be for up to 7 years of duration. The interest rate can vary from bank to bank. But you pay quite a substantial interest on car loan. Is there way to avoid interest? The only situation is when you don't take loan and instead, invest in a scheme which can provide you 12 per cent annualised return.

For that, you have to decide the budget of your future car.

Based on that, you can choose the monthly investment amountm. In this write-up, we will tell you how one can save up to Rs 8.91 lakh in interest and 3 years in duration on a Rs 15 lakh, 7-year car loan. 

What will be car loan conditions?

We are considering a Rs 15 lakh car loan here for a period of 7 years at an annual interest rate of 10 per cent.

In such a case, your estimated interest will be Rs 5,91,749, and the estimated repayment amount will be Rs 20,91,749.

So, in 7 years, you will pay nearly 6 lakh in interest. Your estimated EMI will be Rs 24,902 for the loan.  

Investment amount and tool

Here, your monthly investment amount should be the same as your EMI, i.e. Rs 24,902.

You may choose mutual investment through SIP.

We are expecting 12 per cent annualised return on your investments. 

Return on investment

At Rs 24,902 a month, your investment in 4 years will be Rs 11,95,296, and the expected amount will be Rs 15,19,403.

Of your estimated long-term capital gains of Rs 3,24,107, you will get tax exemption of Rs 1,25,000, so your taxable income will be Rs 1,99,107. If you pay 12.50 per cent long-term capital gains tax on it, the estimated tax will be Rs 24,888.375, and the post-tax expected amount will be Rs 14,94,514.625.

If you make contribution of Rs 5,485.375, you will achieve the target of Rs 15 lakh to purchase your Rs 15 lakh car.

How much money will you save?

Since your car loan repayment was 20,91,749, your SIP investment is Rs 11,95,296, and you are putting Rs 5,485.375 from your own pocket, you willl save an estimated amount of Rs 8,90,967.625.

What if you invest for 1 more month?

Instead of 4 years, if you invest for 1 more month (4 years and 1 month), your investment will be Rs 12,20,198.

At 12 per cent annualised return, estimated long-term capital gains will be Rs 3,38,760, and the expected amount will be Rs 15,58,958.

After Rs 1,25,000 tax exemption, the tax will be Rs 26,720.

Post-tax expected amount will be Rs 15,32,238, which will be sufficient to buy a Rs 15 lakh car.

How much money will you save in this case?

Your car loan repayment was Rs 20,91,749, the invested amount is Rs 12,20,198, and you are also getting a surplus amount of Rs 32,238, your estimated savings will be Rs 9,03,789.  

(Disclaimer: These are projections and not investment advice. Actual car loan and investment return conditions may vary. Do your own due diligence or consult an expert before investing.)