Some of us must getting a car loan or saving money own a car in order to perform our daily jobs, while others view owning a car as a sign of success among our peers and something to aspire to.

Few of us consider buying a car out of our own funds, and getting a car loan is the most popular alternative when buying a car. This article will cover the costs of a vehicle loan, how to use mutual funds to save for a car, and our opinion on which option is preferable so that you can make an informed decision.

The Actual Cost of Car Lending

All of India’s main banks provide automobile loans, and because the loan is secured by the car, the interest rate is lower than it would be for an unsecured loan like a personal loan. There are other expenses, albeit they are little, that together raise the total costs. getting a car loan or saving money

There are expenses like document fees, processing charges, GST added to those processing charges, and so forth. Here is a list of some of the top Indian banks’ car loan interest rates and processing fees so you can get an idea of how much you will pay: getting a car loan or saving money

How Much More Are You Spending If You Buy a Car on Loan?

You must make the down payment before you even consider taking out a car loan. Most banks lend you between 80% and 90% of the car’s on-road pricing. This means that when you buy the car, you must pay 10% to 20% out of your own wallet. Therefore, you would need to put down between Rs. 1.2 lakh and Rs. 2.4 lakh if you take out a loan for a vehicle with an on-road pricing of Rs. 12 lakh.

Now, as we previously stated, the main expense you experience in addition to the cost of the vehicle itself is the interest on a car loan. Your final interest payment will be determined by the total loan amount, interest, and other factors. getting a car loan or saving money

loan tenure, too. Today, most banks provide auto loans with terms up to five years; however, some lenders provide terms up to seven years.

Let’s use the example of a car with an on-road pricing of Rs. 12 lakh to illustrate how much more you ultimately pay. You make the decision to put down 10% and borrow the remaining 8% on a car loan. As a result, you will make an upfront payment of Rs. 1.2 lakh and borrow Rs. 10.8 lakh. You will incur the following additional costs for a 5- and 7-year tenure. getting a car loan or saving money

Also take note that even though the individual EMI payments appear to be inexpensive, choosing the longer duration significantly raises your interest expense. Furthermore, there are no tax advantages associated with paying down a car loan, unlike with a home loan or an education loan. Let’s now think about an option to getting a car loan.

A better decision would be to save money before purchasing a vehicle.

It can seem like a smart idea to obtain a car loan today in order to purchase the car, especially since you will have immediate access to it. But deferring your purchase and paying for it out of resources set aside especially for a car purchase can be a wiser move. getting a car loan or saving money

Let’s use an illustration to clarify this. Let’s say you decide to wait five years instead of taking out a loan to pay for the Rs. 12 lakh car. The Rs. 1.2 lakh you set up for a down payment is now invested. You choose aggressive hybrid funds because they offer some protection from market volatility since you need the money in five years. Using the conservative assumption that your investment will yield 10%, getting a car loan or saving money read more