It is a reality, that in the past few decades a vehicle has turned from an item of luxury to a necessity. During last year alone i.e. 2016, car sales in India crossed the three million mark which was unheard of and beyond expectation. This just shows the popularity of a car in an Indian household. The rise in the purchase of cars has also resulted in increasing number of buyers taking a car loan to purchase a car.
However, in order to own a car, we often forget to plan properly for the same, and end up making some or the other financial mistake. Planning is essential in life, be it anything! It is important on how you manage your existing car loan.
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Down below we are going to give you a few pointers on how to manage your existing car loan.
Down payment: While it might seem to be a good option while paying off your car loan, you have to be careful when it comes to the amount of down payment which is paid. Most of the first time home buyers make the mistake of paying a small amount of down payment, seeing only the upfront cash benefits. What they don’t realise is the fact that small down payments can have adverse effects on the loan tenure, interest rate, and payable EMIs. It is better if you pay a large amount of down payment. A large amount of down payment will reduce the car loan duration. While paying, it might seem to be a huge amount, but in the longer run, it will be time and money saving.
Interest Rates and EMIs: When it comes to interest rates and EMI, you should be clear which one is the best for you? A low-interest rate might seem to be attractive at the time, but it will take up a lot of your time and you will have to pay the EMI for a longer duration, which means you will have to pay more EMI. Same is the case with short tenure, it might seem to be time and money saving, but if you cannot afford it, it will be a burden on you on a monthly basis as it will eat into your monthly budget. Take a stock of your financial situation and decide what is best for after analyzing it thoroughly.
Tenure: Ideally if you can afford without straining your monthly budget, then you should go for a short loan tenure. A longer loan tenure might result in a smaller EMI, but over a period of time, you will have to pay more money in interest. On the other hand in a shorter loan tenure, you might have to pay more EMI, but over a period of time, you end up paying less in EMIs.
Transfer of loan: In a situation where you are having difficulty in paying off your loan because of high EMI, you always have the option of transferring or restructuring it. By restructuring your loan we mean that the lender from which you are availing the loan from will alter the interest rates, EMI and also the tenure. You also have the option of transferring the loan amount to some other lender who has low-interest rates and shorter tenure.
Hence, it is important to plan out your loan budget before taking the loan. It will help you channelise your thoughts and resources in proper fashion. It will also give an idea that how much you can spend each month to pay off your loan. Hence, it is important that you have done the research about the key terms and conditions, pre-payment charges, processing fees, eligibility criteria and others.
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