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Avoid debt for purchase of vehicles, as a thumb rule

The interest rate on a car loan at present is about 8%.

1 min read . Updated: 03 Oct 2021, 09:12 AM IST Livemint

If your investment portfolio can generate a higher return than the interest you will be paying for the loan, only then you may consider taking the loan

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I have saved ₹8 lakh via equity and debt funds and now plan to purchase a car by end of the year. Should I take a car loan or pay the full amount via downpayment?

—Name withheld on request

If you had accumulated the amount through equity and debt for the objective of buying a vehicle then you should use it for the same. But, if this amount is meant for any other short- or mid-term financial objective, then you may have to evaluate your options accordingly. The interest rate on a car loan at present is about 8%. If your investment portfolio can generate a higher return than the interest you will be paying for the loan, only then you may consider taking the loan. If the return from your investment is marginally higher than the interest rate of your loan it is better to use the money to purchase the vehicle instead of taking the loan. As a thumb rule, it is always better to avoid debt.

Harshad Chetanwala is founder, MyWealthGrowth.com. Have personal finance queries? Email us at mintmoney@livemint.com