How to pay off car loans smartly: Five smart tips

How to pay off car loans smartly: Five smart tips

Buying a car is a dream for many. Many consumers opt for car loans while buying their dream vehicle. However, for many vehicle owners, car loan EMIs become burdensome after a while, putting their entire financial health at risk. This prompts some car owners to start looking for prospective vehicle buyers and sell their dream vehicles. However, with an ongoing loan, many customers shy away from buying that vehicle, which leaves the owner in the first place in jeopardy. However, you can avoid such a situation with your car loan. Here is how to do that through some smart steps.

HT Auto Desk

Updated on:
07 Dec 2022, 15:22 PM

Finance crunching car loans can have a destructive effect on a vehicle owner. (Bloomberg)
Finance crunching car loans can have a destructive effect on a vehicle owner. (Bloomberg)

Choose a car that you can afford

Before you buy or even start looking for a car, always assess your affordability based on your financial strength and the recurring costs involved with the vehicle purchase. For example, if your financial strength allows you to buy a small hatchback, don’t opt for a premium SUV that is beyond your reach. You may purchase the premium vehicle with easy financing options, but the recurring costs involved with it would put you in trouble.

Make additional EMI payment

Making additional EMI payments that you can afford can reduce the burden of a car loan from you in the long term. Doing so can reduce the loan tenure and interest outgo as well. For example, if your EMI payment is 14,500 per month, you can stretch it a bit and pay 15,000, just 500 extra. This extra payment is unlikely to make a hole in your pocket, while at the end of the year, you pay off an additional amount of 6,000 towards your EMI.

Make sizeable downpayment

While purchasing the vehicle, make a sizeable downpayment to keep the loan amount smaller. This will eventually help you with lower interest rate payments and shorter loan repayment duration. For example, if the car price is 10 lakh and you can afford to pay half of it, pay the amount instead of a lower downpayment. This will ensure you pay interest on 5 lakh only instead of a higher amount. It may put pressure on your pocket during the downpayment, but in the long term, it would be beneficial for you.

Part or prepayment of loan

If you can prepay a part of the loan from the hike in salary or investment yield, try that. This will not only reduce the overall loan amount but also save you from paying a lot of interest, which otherwise would put a burden on your recurring monthly finance. Many banks and NBFCs provide car loans, allowing users to avail of this option. However, before opting for such an option, get it confirmed from the bank or the NBFC you have availed loan from about the penalty involved with this process. If a penalty is involved with the loan prepayment, deduct the saving you would make on interest from the penalty charges applicable on part or pre-payment. If you find the resultant saving substantial, it is worth making the part or pre-payment.

Avoid unnecessary expenses

Make an effective financial plan keeping in mind the expenses such as house rent, electricity, food and other mandatory costs. Always ensure that your income should be much higher than the expenses so that you can pay off your car loans without jeopardizing your financial health. Avoid unnecessary expenses, as they could impact your EMI payments.

How to avoid finance crunching car loan EMI

Step 1 :

Choose a car that you can afford

Step 2 :

Make a sizeable downpayment

Step 3 :

Make additional EMI payments

Step 4 :

Avoid unnecessary expenses

Step 5 :

Make part or pre-payment of loan

First Published Date: 07 Dec 2022, 15:21 PM IST