SIP Investment for 4 Years or Car Loan for 7 Years: Which route will help you save Rs 7.17 lakh on Rs 12 lakh loan? Get calculations
SIP vs Car Loan EMI: Do you want to buy a car? Should you go for a loan, or plan purchase in advance and invest through SIP in a mutual fund? Know which can be a faster route
SIP vs Car Loan EMI: Having a car is a dream for many Indians. For some, it is a necessity; for some, it is convenience; and for some, it is a show-off. But most people want to have at least one car in their life. Cars are expensive. Even a mid-range car costs Rs 8 lakh–Rs 10 lakh these days. Most people rely on car loans to purchase a car. But a car is a depreciating asset. Its cost decreases with time. So, it's better to make as much down payment as possible to save a substantial amount in interest. The other way is to plan a car purchase in advance and invest the money equal to the loan's equated monthly installment (EMI) in an investment scheme. E.g., if you want to take a car loan of Rs 12 lakh for 7 years and have an EMI of Rs 15,000, invest the same amount in a scheme where you get growth. For that, one can also start SIP investment in a mutual fund scheme. Here, through calculation, we will show you how, with 4 years of investment, you can get the same amount that you would have paid in 7 years for a car loan, and save a total of Rs 7.17 lakh.
Photos: Unsplash/Pixabay
(Disclaimer: Our projections are for knowledge purpose only. These are not investment advice. Actual loan terms and conditions may vary.)
Car loan conditions
For comparison, we are assuming a Rs 12 lakh car loan that you will get at a 10 per cent annual interest rate for 7 years.
What will be your EMI?
Given the conditions, your estimated car EMI will be Rs 19,921. The estimated interest amount in 7 years will be Rs 4,73,399, and the estimated repayment will be Rs 16,73,399.
Will there be more charges on a car loan?
There can be charges, such as the loan processing fee and insurance of the loan. We are not including that in our calculations.
SIP investment conditions
Here, you need to make a Rs 19,921 SIP investment in a mutual fund scheme(s). We are assuming investment in equity mutual funds, where we are expecting a 12 per cent annual return.
What will be corpus after 4 years?
If you make an investment for 4 years, your total investment will be Rs 9,56,208, but at 12 per cent growth, your expected amount will be Rs 12,15,485.
Even if you get a 10 per cent return on your investment in a little over a 4-year period, you will get an estimated amount of over Rs 12 lakh on a less than Rs 10 lakh investment.
What will be corpus post tax?
Since we are taking 12 per cent as the standard growth here, your long-term capital gains will be Rs 2,59,277. You will get Rs 1,25,000 exemption on these gains and need to pay 12.50 per cent tax on Rs 1,34,277. The tax amount in this way will be Rs 16,784.625. Even after paying taxes, you will have a balance of Rs 11,98,700.375. With a little more amount, you can easily get Rs 12 lakh and purchase your dream car.
How much money will you save?
On the Rs 12 lakh loan, you interest was Rs 4,73,399, and the repayment amount was Rs 16,73,399. Here your investment is Rs 9,56,208. So, overall, you will save, Rs 7,17,191.