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:
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?
