Personal Finance Blog India –

New Car:Loan Or Downpayment?

Santhosh is in great dillema.He has selected a car of his budget of Rs.5 Lakh.Now he is confused whether to take a loan or make a downpayment.There are two streams of thoughts and they are as follows

  • If he decided to take a loan and make fixed deposit of Rs.5 lakh he has:
Benefit with this attitude is that he has emergency fund whenever required in future.Just care needs to be taken that available Rs 5 lakh  should be properly invested.
Loan Amount: Rs. 5 lakh.
Rate Of Interest:10%.
Term: 10Yrs.

Then,Equated monthly Installment (EMI)  :Rs.6607.55

interest paid within 10 yrs(numerical summation of interest component): Rs.2,92,904.40 and

Principal : Rs. 5 lakh

Both will be summed to:  Rs 7,92,904.

What happens to money he has invested in fixed deposits:

Rs. 5 lakh he have grown to Rs. 12,47,722 with interest rate of 9.25% as offered by state bank of India.

  • He decided to make down payment and start recurring deposit of amount equivalent to EMI i.e.of  Rs.6607:

Advantage with this attitude is that there won’t be any burden of loan .But need is to save money carefully as we pay monthly EMI.

Monthly RD installment:Rs.6607

Term:10 Yrs.

Then within 10 yrs,monthly recurring deposits will grown to: Rs. 13,01,492.


I do not find anything wrong in either attitude…what do you think?

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