Avoid debt for the purchase of vehicles, as a rule

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I saved ??8 lakh via equity and debt funds and are now planning to buy a car by the end of the year. Should I take out a car loan or pay the entire amount by deposit?

—Name hidden on request

If you had accumulated the amount through equity and debt for the purpose of purchasing a vehicle, you should use it for the same. But, if this amount is for any other short or medium term financial goal, you may need to weigh your options accordingly. The interest rate on a car loan is currently around 8%. If your investment portfolio can generate a return that is greater than the interest you will pay for the loan, only then can you consider taking out the loan. If the return on your investment is slightly more than the interest rate on your loan, it is better to use the money to buy the vehicle instead of taking out the loan. As a general rule, it’s always best to avoid going into debt.

Harshad Chetanwala is the founder, MyWealthGrowth.com. Do you have questions about personal finances? Email us at [email protected]

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