Buying a car is a decision that you don't take suddenly. A lot of deliberation, financial planning, and research goes into buying a car. And even after so much of thinking, we end up taking an auto loan to own a brand new car.
However, a little forward thinking can help you buy a car without taking a loan.
Here is how it works.
Loan Option
Let us assume that you want to buy Grand i10 Sportz trim. Its on-road price in Delhi is around Rs 7,22,621. Now, if you plan to make a down payment of Rs 1,00,000 then you will have to take the finance of 6,22,621. If you consider the loan taken at 9% per annum for a tenure of 5 years then you will have to pay an EMI of Rs 12,925.
Your payable amount will jump to Rs 7,75,475 and the effective cost of the car will shoot up to Rs 8,75,475. That's around 1.5 lakh more than the actual cost of the car.
But, if you plan a bit ahead, you can avoid paying such hefty interest and even earn some returns on your money.
SIP Option
If you already have a plan to buy a new car in the next few years, then you can do a goal based investment to save up the money for your car. Let us say, you start investing money equivalent to the EMI you would have paid i.e. Rs 13,000 per month in an equity mutual fund.
By investing this amount monthly for 4 years, you will accumulate a principal amount of Rs 6,24,000. And if we take humble returns of 12%, then you total accumulated amount will be Rs 7,96,000.
Now, this means you can easily cover Rs 7,22,621, the cost of the car and have a surplus of over Rs 50,000 in your bank account.
You can apply this method on buying a more expensive car as well.
Why save and buy?
Financial experts call cars a depreciating asset. The moment you buy a car, its value depreciates by up to 20%. Hence, instead of paying hefty interest rate on owning a car, it is better to wait for some more time, save up and buy your dream car without any financial liability.