SIP Investment vs Auto Loan EMI: Which option may help you save Rs 11.73 lakh and 3 years on Rs 20 lakh, 7-year car loan; know calculations
SIP investment vs Auto Loan EMI: When you take a Rs 20 lakh auto loan at a 10 per cent interest rate for 7 years, your estimated EMI is Rs 33,202, the estimated interest is Rs 7,88,999, and the estimated repayment is Rs 27,88,999.
SIP Investment vs Auto Loan EMI: When we purchase a high-end car and take a loan for the same, there are two factors that amplify your loan burden. A car is a depreciating asset, so you are taking a high-interest loan against an asset whose value will decrease in the future. The second factor is that the interest amount is substantial, and by the end of the loan, you end up paying huge interest. But cars are expensive. One needs a lot of money to buy them in cash. So, the obvious choice is to take a loan and purchase the car. But what if you make buying a car part of your financial planning? What if, instead of zeroing in on a car model, you target the car price range for the future? Instead of extending your loan application, you invest in a scheme where your investment grows with time. What if you invest through SIP in a mutual fund scheme, where your annualised growth rate is 12 per cent?
Such financial planning of buying a car can save you huge money compared to when you take a Rs 20 lakh loan. In this write-up, know through calculations how it may be possible.
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Car loan conditions?
For our calculation, we are taking a car loan of Rs 20 lakh at a 10 per cent annual interest rate for 7 years.
What will be EMI amount?
The equated monthly installment (EMI) in such a case will be Rs 33,202.
What will be interest and repayment amounts?
The estimated interest on the Rs 20 lakh auto loan will be Rs 7,88,999, and the repayment amount will be Rs 27,88,999.
What can be an alternative way?
The alternative way can be an investment, where you get at least 12 per cent annualised return. It may be an SIP mutual fund investment.
Here, one needs to invest through SIP the amount equal to EMI. In this case, the monthly investment will be Rs 33,202.
For how long one may need to run SIP
Here, we will show the projection that in little over half the duration of the 7-year loan, one can accumulate the amount through SIP investment to buy a car.
What will be long term capital gains and expected amount?
At a Rs 33,202 monthly SIP for 4 years and one month, your investments will be Rs 16,26,898, estimated long-term capital gains will be Rs 4,51,671, and the expected amount will be Rs 20,78,569.
What will be post tax return?
One gets Rs 1.25 lakh exemption on equity mutual fund long term capital gains. So, after getting that exemption, one needs to pay a 12.50 per cent income tax on Rs 3,26,671. The tax will be Rs 40,833.875.
What will be post tax return?
So, post tax estimated returns will be Rs 4,10,837.125, and the total expected amount will be Rs 20,10,837.125. It means the estimated surplus amount will be Rs 10,837.125. It will help you achieve your goal of buying a car.
How much money will be saved compared to Rs 20 lakh car loan?
On a Rs 20 lakh auto loan, the expected repayment amount was Rs 27,88,999.
How much money will be saved compared to Rs 20 lakh car loan?
In SIP, the investment amount was Rs 16,26,898, and the surplus gain is Rs 10,837.125, so overall one will save estimated Rs 11,72,938.125.