Interest-Free Car Loan! A Serious Money Saver Strategy Decoded | Auto News

September 9, 2024

NEWS

Car Loan Interest Saving Strategy: Buying a car is a significant financial decision, and most people opt for a loan from the bank to finance it, which is paid back through EMIs. The bank providing the loan charges interest, which means your EMI includes both the principal and the interest amount. While it’s not possible to get an interest-free car loan, there is a way to offset the interest you pay. You can create a strategy where the interest paid on the loan is essentially reimbursed through returns from another investment source. Here’s how you can do it:

Car Loan And Interest

Let’s say you take a car loan of Rs 5,00,000, and the bank charges an 8% interest rate. This loan is for five years. According to Axis Bank’s loan calculator, for a Rs 5,00,000 car loan at an 8% interest rate over five years, you’ll end up paying a total interest of Rs 1,08,292. Your EMI will come out to be Rs 10,138. So, you’ll need to pay roughly Rs 10,000 every month to repay the loan. Now, let’s move on to the next step.

Invest In SIP

As soon as you take the car loan, start a SIP (Systematic Investment Plan) alongside. Keep investing in it every month. Suppose you invest Rs 5,000 per month in a SIP for five years. If you get a return of 14% (which is common in long-term investment), according to Groww’s SIP calculator, you’ll get a return of Rs 1.36 lakh in five years. This is almost Rs 28,000 more than the interest you’d pay on your car loan. However, this is subject to market risks.

Start a SIP Along with the Car Loan

In simple terms, you should start a SIP when you take a car loan. Calculate how much loan you’ve taken and how much you need to invest in a SIP, so the interest earned from your SIP covers the interest paid on the loan.

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