Loan and invest, or pay cash
Buy on a loan, keep your money in an FD, and let the interest pay part of the EMI. See what comes in by itself, what you add from your pocket, and whether it beats paying cash.
About this calculator
The question this answers
You have the cash to buy something outright, but you could also take a loan and leave the money invested. The loan costs interest; the investment earns a return. This page runs both routes side by side and shows how much of each EMI your investment income covers by itself, and how much you add from your own pocket.
The honest test is the gap between the two rates, after tax. Interest on a fixed deposit is added to your income and taxed at your slab, so a deposit paying 7% returns around 4.9% to someone in the 30% bracket. A loan at 9% against that is a losing trade of roughly four percentage points a year.
Why people still take the loan
A lower total cost is not the only consideration. Keeping money invested leaves you with a cushion for emergencies, and a loan you are servicing comfortably builds credit history. Spending every rupee of savings on a car can mean borrowing at a much worse rate three months later when something goes wrong.
The calculator shows both the simple comparison and a fairer one, where the cash route also invests the money that would otherwise have gone on EMIs. That second figure is the one to judge by.
Common questions
Is it better to buy a car with cash or a loan?
Compare the loan rate with what your money earns after tax. Car loans usually cost more than a fixed deposit returns after tax, so paying cash usually costs less in total. What the loan buys is liquidity: your savings stay available.
How do I account for tax on the investment?
Fixed deposit and savings interest is added to your income and taxed at your slab rate, so compare the loan rate against the post-tax return rather than the headline rate. This calculator has a field for your slab.
Does the car losing value change the comparison?
No. The car depreciates by the same amount whichever way you pay for it, so it cancels out of the comparison and is left out here.