Here’s something that the rich understand intuitively that the lesser moneyed don’t...
Say you take a loan of Rs 1 crore today at a 6% p.a. interest rate, repayable over a 30 year schedule.
And on the same day, you invest Rs 1 crore at 6% p.a. interest rate for a 30 year period.
By the end of the 30 years, would you have made more interest than you paid, or the two figures would have cancelled each other out?
At the end of 30 years, you would’ve paid a total of Rs 2,15,83,819/- in loan repayment including interest.
And on the investment of the same amount, you’ll receive Rs 5,74,34,911/- after 30 years.
The term remains the same, the amount remains the same, the interest rate remains the same.
But the earning difference is over Rs 3.5 crores!
And simply because the principal of your loan keeps reducing gradually in EMI's every month, but your principal invested keeps growing, compounding over and over.
This is one of the primary reasons why the rich use loans to finance houses and cars and everything else because they know that their savings invested in the right assets will make much more than being used to buy other depreciable assets (cars) or assets that they expect would not give as much return (a house to live in).
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