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Originally Posted by fundagenie And so I also decided to take your opinion. Am planning to buy the XUV 500. The on road price as quoted by the dealer is ~14.8 lacs. I have 3 lacs in hand. |
Pay as less downpayment as possible (from 3L), and put the remaining funds into the OD account immediately. The amortization schedule which normally works against you will work for you!
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Originally Posted by fundagenie
Now coming to the part where I want your opinion. I do not have a bulk amount to put into the OD account initially. But with my current pay check, I believe I could manage depositing atleast an extra amount of 10000Rs on a monthly average, which would mean an extra of 1.2 lacs and more annually apart from the emi payments.
And I was planning to do the same with the normal loan payment also. But then I lose the option of liquidity with this extra cash.
So Keyur, what would you suggest - which would be the better option for me... considering the fact that I dont have 50% of the required amount with me initially and I have plans to put some extra money on the go .
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That's fine even if you don't have the money upfront. As long as you are planning a systematic investment, you should go in for this.
At the end of 1 year, even if you pay 1.2L (that is 10% of the 12L that you will borrow), the amortization schedule and the daily reducing balance of SBI Loans will work for you. Even without considering this, see this math :
Just for ease of calculation, assume that you pay 1.2L at the end of 1 year (not monthly). Remaining principal will be less than [12L -1.2L -principal part of your EMI (which will increase if you pay 10K per month)] - so lets say that it is approx 10.5L.
So from year 2 to 7, you pay the interest in 10.5L (10% less), but you still have the liquidity. As long as you go on putting in money regularly, you can't lose!
Also, instead of putting in just 10K, put your entire salary there. Activate this account for Internet Banking, Mobile Banking and get a Debit Card. Withdraw as you need. This will help you even more.
If there is cash lying around (doing nothing ) in your parents' or spouse's account, dump it here. You will be saving around 11% on that amount (the interest rate of your loan), whereas they will earn only about 6-7% (minus 30% TDS) on the same.
There is a simple concept to this thing :
1. The amortization schedule is such that the bank deducts a major part of your EMI as interest - only a tiny bit goes to the principal.
2. If you deposit some extra amount of money, that results in a direct principal deduction.
3. Because of this deduction from principal amount, you go ahead in the amortization schedule. So, the same EMI from which the major part goes in for interest will now result in a greater amount going to the principal and lesser to interest.
4. This increased amount going to the principal component further reduces the interest component and this cycle goes on!
So, beg, borrow, steal and put in a good amount atleast initially for a few months. Once this is done, your EMI itself will pay more towards principal.
So when the time comes to return the money, you are still ahead of what you would have been!
All the best and hope I did not confuse you!