Loan vs full upfront payment: Why I didn't pay full cash for a ₹20 lakh car

Next time you buy a car, ask yourself: Do you want to just own it, or own it smartly?

For years, I believed the “best” way to buy a car was simple: pay the full amount in cash and be done with it. No EMIs, no loans, no stress. But when I recently looked into the math, I realised there’s a smarter way — one that not only gets you the car but also grows your wealth.

 

Take this example as explained by Vijay Maheshwari, certified wealth manager, in a LinkedIn Post

 

 Say you’ve got ₹20 lakh and want to buy a car worth ₹20 lakh.

 

Option 1: Pay in Full

You hand over the entire ₹20 lakh. End of story. The car is yours, but your bank account is empty.

 

Option 2: The Smart Loan Strategy

 

Put down ₹5 lakh as a down payment.

 

Take a car loan of ₹15 lakh at 9% for 5 years.

 

Instead of emptying your savings, invest the remaining ₹15 lakh in a conservative or moderate mutual fund averaging 11% returns.

 

Now let’s look at the numbers:

 

Loan interest over 5 years = ₹3.6 lakh

 

Investment growth in 5 years = ₹10.8 lakh

 

Net gain = ₹7.2 lakh ????

 

That’s the power of opportunity cost and compounding.

 

Why It Works

 

Your loan interest reduces each year as you repay the principal.

 

But your investments? They compound — earning returns not just on your money but also on past returns.

 

Instead of a depreciating car eating away your cash, your money keeps working for you in the background.

 

The Takeaway

 

Next time you’re tempted to pay cash for a big purchase like a car, pause and ask yourself: Do you want to just own it… or own it smartly?

 

Because sometimes, the smartest financial move isn’t avoiding debt — it’s using it wisely. 

 

(Disclaimer: Mutual Fund investments are subject to market risks. Read all scheme related documents carefully before investing.)