The eternal car buyer dilemma: pay more upfront to lower EMI, or keep cash liquid and go for a higher loan? The answer depends on your financial situation — here's the framework.
Higher Down Payment Argument
On a ₹15L car at 9% for 7 years: 10% down (₹1.5L) → EMI ₹21,170, total interest ₹5.1L. 30% down (₹4.5L) → EMI ₹14,819, total interest ₹3.6L. Saving: ₹1.5L interest.
Higher Loan Argument
If your invested savings earn 12% (equity MF), the opportunity cost of using ₹3L for down payment over 7 years is ~₹6.6L in missed compounding — far more than the ₹1.5L interest saved.
Rule of Thumb
If your investments earn more than the car loan rate, take the higher loan. If you have no investments and the cash is idle, pay more upfront. Never stretch to buy a car you can't afford on 20% down.