Want to buy a car but not pay EMIs? We have a solution

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! 

An average hatchback (small car) in India costs anywhere between Rs 3 lakh to Rs 9 lakh. For the sake of this calculation, let's take Maruti Suzuki Swift whose VXi ABS Petrol version has an on-road price of Rs 6,57,009 in India (prices taken from Carwale.com)

The ex-showroom price of the car is Rs 5,69,505, including GST. 

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! 

Just a little bit of forward thinking can help you not pay that monthly EMI on that car loan which will result in you spending Rs 1.8 lakh more, but will also help you save a cool Rs 1.2 lakh on your dream car purchase. 

Disclaimer: This story is for informational purposes only and should not be taken as an investment advice.