SIP Investment vs Rs 18 Lakh Car Loan: Which option can help one save Rs 6.92 lakh; know here
SIP Investment vs Rs 18 lakh Car Loan: If you are taking a Rs 18 lakh auto loan at a 10 per cent interest for 7-year duration, the estimated equated monthly instalment (EMI) will be Rs 29,882, the estimated interest will be Rs 7,10,099, and the estimated repayment amount will be Rs 25,10,099.
SIP Investment vs Rs 18 lakh Car Loan: Like other things, financial planning for buying a car should also be done in advance. For buying a car, the traditional route is to make a down payment, take a loan, and start paying equated monthly instalments (EMI). Since vehicle loans are up to 7 years, the borrower may end up paying quite a large amount in interest. Since car's value also depreciates with the time, the overall cost on the borrower's pockets is significant. The other route can be plan your car purchase in advance. Either target a car price or the car model and calculate inflation-adjusted value of the car. In this write-up, we can be a faster route to purchase a car- SIP investment or Rs 18 lakh car loan and how much estimated amount will be saved.
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(Disclaimer: Our calculations are projections. They are not investment advice. Do your due diligence or consult an advisor before investing)
Car loan conditions
We are taking the example of a Rs 18 lakh, 7-year car loan at 10 per cent annual interest rate.
What will be car loan EMI amount?
The estimated equated monthly installment (EMI) in such a case will be Rs 29,882.
What will be interest and repayment amounts?
The estimated interest on a Rs 20 lakh car loan will be Rs 7,10,099, and the estimated repayment amount will be Rs 25,10,099.
What can be an alternative way?
It can be any investment scheme where one gets 12 per cent annualised returns. SIP in a mutual fund(s) can be one of them.
Here, we will keep the SIP investment amount the same as the EMI- Rs 29,882.
For how long one may need to run SIP
We will show how 5 years and 1 month investment will generate a corpus that can be sufficient for you to buy a car even in inflation-adjusted loan amount.
What will be long term capital gains and expected amount?
At a Rs 29,882 monthly SIP for 5 years and 1 month, the invested amount will be Rs 18,22,802, estimated long-term capital gains will be Rs 6,53,898, and the expected amount will be Rs 24,76,700.
Inflation adjusted loan value
The loan value of Rs 18 lakh loan in 5 years and 1 month will be Rs 24,08,806 at a 6 per cent annual inflation rate. So, you need that amount to buy a car.
Income tax on mutual fund gains
Since estimated long term capital gains are Rs 6,30,618. If one gets Rs 1,25,000 exemption on those gains, the tax amount will be Rs 63,202.
Post tax expected amount
Post tax expected amount will be Rs 24,13,498. That can cover the expenses to buy a car.
How much money will be saved?
Repayment amount of Rs 18 lakh loan was Rs 25,10,099. The SIP investment amount is Rs 18,22,802.
How much money will be saved?
Plus, the post tax expected amount is Rs 4,692 more than the car loan's adjusted price. So, the estimated savings are Rs 6,91,989.