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Mr Kunal Sharma wants to buy a motorbike which is priced at ₹45,500. The bike is also available at ₹25,000 down payment and monthly installments of ₹1000 per month for 2 years or ₹18,000 down payment and monthly installment of ₹1000 per month for 3 years. Mr Kunal has with him only ₹12,000. He wants to borrow the balance money of the down payment from a private lender whose termsare : if ₹6,000 is borrowed for 12 months, the rate of interest is 20%. The interest will be calculated on the whole amountfor the whole year, even though the repaymenthas to be done in 12 equal monthly installments starting from the first month itself. Thus he will have to repay an amount of ₹600 per month for 12 months to repay ₹6000 (Principal) + ₹1200 (Interest @ 20%). If ₹10,000 upwards is borrowed for one year, the rate of interest is 30% and is calculated in exactly the same manneras above.
If Mr Kunal is ready to pay either of the down payments then whichofthe installment schemes is the better option of the two? (Assume that Mr Kunal will pay the installments out of his own earnings and he keeps his savings with himself and earns no interest on the same.) Also assume that instead of borrowing the remaining money for the down payment, he saves the balance before the purchase
