With more than first half of the year 2017 is over, the automakers are all set to hit the Indian roads in the second half with a dozen of new models having jaw-dropping features. Hyundai Verna New, Nissan X-trail, Datsun Go Cross, Tata Nexon, and much more are ready to hit the bulls eye. The price of these cars can be as low as ₹4.5 lakhs to as high as ₹2 crores. Now comes the strength of your wallet to deal with the strain emanating from paying the price of your favourite car. How will you pay the sum? Through your own financial resources or a loan that will part the payment in Equated Monthly Installments (EMIs). Well, the former option may not be feasible for many.
So, the second option is what you would tick, right! With a car loan comes the need to evaluate the lenders in terms of their interest rate offers. As it is one of the most important determinants of your loan repayment future, the interest rate comparison is done frequently by the borrowers. As far as the interest rate is concerned, it ranges from 8.75%-13% per annum for new cars. But is car loan interest comparison the only due diligence you need to do? Well, my answer is ‘No’. So, what are all those you are supposed to do for a smooth repayment experience? Let’s find them here.
Down Payment– The banks and other financial institutions lend upto 85%-95% of the ex-showroom price. The balance left will have to be paid by the borrower in the form of a down payment to the dealer to get the possession of a car. Try to pay a bigger down payment so that the actual loan requirement would come down in numbers. When that happens, the overall interest outgo from your pocket over the loan tenure reduces significantly, giving your finances the much-needed relief.
Choose a Comparatively Shorter Loan Tenure– A bank representative can exhort you to opt for a longer loan tenure. Let me tell you the maximum tenure can be upto 7 years in the case of a new car loan. If you do agree with the representative’s call for a longer tenure, the EMI will reduce for sure, but the interest repayment will tear your pocket. So, the right call here would be to select a comparatively shorter tenure. Availing this option will cause the EMI to jump a bit, but you would end up saving a lot of interest. Can’t believe it? Take a look at the example below.
Example-Shilpi Gupta, a 30-year old engineer, applies for a 7-year car loan of ₹6 lakhs at an interest rate of 9.85% per annum. Her friend Akanksha applies for the same loan amount. Interestingly, the lender charges the same 9.85% interest rate in her case as well. However, she has gone with a 5-year tenure. Shilpi is supposed to pay an EMI of ₹9,883 and interest of ₹2,30,204 over the loan term of 7 years. In comparison, the EMI and interest liability of Akanksha pan out to be ₹12,675 and ₹1,60,473, respectively, over the course of 5 years. While Akanksha is supposed to pay a higher EMI of 2,792, her interest outgo would come down by as much as ₹69,731 compared to Shilpi.
Emphasis on Savings– A car loan is not a productive asset to carry on. You can reduce the loan burden by utilizing some of your savings. The reduced loan amount will mean a lesser outflow of interest from the pocket.
Choose Car Models According to Your Budget– It’s important to have a clear idea of the income and repayment capability before mulling a car loan option. A mere lit up here can be a dampener to your finances big time. Doing this due diligence will help you choose cars that can go with your budget and enable a smooth repayment of the loan.
Hey, buddy, you have much more than car loan interest rate to do if you want your wheel to run without rough edges. Do keep the points raised in the article into consideration before applying for a car loan.