Smart Tips To Save Up For Loan Down Payment Without Stressing Your Finances

Owning a home and a car are probably the top two financial goals for many of us, right? While there¡¯s no denying the fact that home loans and car loans have been a gateway to achieve these goals for several decades, one component that we ourselves take care of, is the margin money, i.e. the down payment.

But instead of feeling dreadful about this term, keep in mind that a well thought out investment plan can make you sail through pretty easily. Curious to know how? Read on to know how you can save up for your downpayment without stressing your finances.

Pin down a budget amount for the asset

shutterstock

How can you estimate and save up for the downpayment without knowing the expected value of your attached? So the first step is to pin down a budget towards the target asset, whether it's a home, car or both. As per your income, lifestyle, current and expected expenses, jot down the budget you can allocate towards purchase of that asset, so that you have a clear mind that prevents you from going over budget and hurting your finances amidst the bid to achieve that goal.

Research about the LTV ratio

shutterstock

Now that you have a budget estimate in mind, the next step is to dig deeper into the research about the LTV ratio put forth by lenders for that loan. Whether it's a car loan or home loan, lenders tend to contribute a certain percentage of the property or vehicle¡¯s cost as loan, known as the Loan to value ratio (LTV).

Also Read : Does It Make Sense To Buy A New Car Or Just Uber Everywhere

For instance, in line with RBI¡¯s guidelines, home loans involve a LTV ratio of upto 75%-90%, implying that a minimum of 10%-25% of property¡¯s cost has to be borne by the homebuyer, in the form of downpayment. As far as car loan is concerned, lenders mostly tend to finance upto 85%-90% of vehicle¡¯s on road/ex showroom price as car loan, but some lenders have begun financing upto 100% as well.

Start saving as early as possible

shutterstock

With the budget and estimated downpayment amount sorted, what are you waiting for? Go ahead and begin investing for the downpayment as early as possible. The earlier you begin investing, the more time your money gets to grow and maximize the power of compounding.

Start investing as per your risk appetite and investment horizon. If your investment horizon is short to medium, like 1-3 years, you can go for debt funds and FDs. Whereas if its a long term one 4-5 years or more, going for the SIP route to invest in equity mutual funds can be your answer. Remember, the key is to reap the benefits of starting early. After all, early bird catches the worm!

Don't dip into your earmarked investments or emergency fund

shutterstock

In your pursuit to timely save the target corpus amount for down payment, never commit this mistake of disturbing your emergency fund or dipping into your other earmarked investments for goals like retirement, child¡¯s higher education etc. Doing so can harm your financial health in more ways than one. Firstly, disturbing your emergency fund would result in inability to tackle unforeseen financial emergencies and continue monthly recurring expenses like rent, SIPs, utility bills etc when adverse life event like job loss strikes. And secondly, redeeming your earmarked investments would lead to failure to accumulate the target corpus for that goal, and even incur losses if market linked investments which you redeemed were in red.

And even if you were able to pay for the downpayment through these two ways and hence avail the required home or car loan, you would be left in a financially vulnerable state wherein you would have to borrow from others or avail more loans to deal with exigencies or realize the other goals for which those redeemed investments were earmarked for.

For more of such interesting financial content, click here.

Click here to download CRED