Car loans have become the most efficient way to finance cars because of their convenience and flexibility. An individual car for today is more than privacy and safety. It is the necessity of protection from the prevailing fatal diseases. Banks and financial institutions have made that possible for millions.
Without any hassle, a car loan can be availed either by meeting the banker and signing documents or just by clicking a few buttons from anywhere in the world. A car loan is still a loan that needs to be paid back to the loaner. A Car Loan emi calculator can be used to calculate the monthly installments you’ll have to pay for the loan amount availed.There are many repayment opinions on how you can pay off your loan and monthly installments and few tips that can help you back efficiently.
Car loan repayment methods -
Regular EMI :
Equated Monthly installments (EMI) is the interest amount you have to pay for availing the car loan each month. This method to repay is the most common and highly used among peers. The interest amount is calculated based on the tenure and loan amount. Each payment can be done either at the beginning or the end of the month, known as “monthly in advance” for the former and “monthly in arrears” for the latter.
Step-up EMI :
A step-up loan is one where you can pay lower EMI in the initial months of the tenure and keep it increasing as the months pass in the tenure. This type of repayment is suitable for people who have just begun their careers and are sure to see a swell in income or profit. This type of repayment option could also benefit people who want luxurious cars but can only afford small cars. The Car Loan interest rate is quite higher than adopting the standard EMI payment option.
Step-down EMI :
The monthly installment amount is higher at the beginning of the tenure and gradually decreases as the months’ pass. This method is beneficial for people who can afford large payments initially and have difficulties later in paying. All banks and NBFCs offer this method.
Special tie-up method :
In this method, a tie-up relation is formed between the banker and loanee. Whenever a loaner meets an increase in profit or income or any other bonus the money is transferred directly to the loan repayment. This is highly beneficial and is opted by many. A special tie-up method for repayment helps in reducing the total interest amount and principal.
Ballon EMI :
Ballon EMI method is one where you can pay low-interest rates throughout the tenure but have to pay the remaining interest amount along with the principal at the end of the tenure. This option is preferable for people who can pay only a small amount of interest each month.
Tips to manage your repayment -
Down payment :
Banks and Non-Banking Financial Institutions offer 90% of the car’s ex-showroom value as loan amount, some banks even offer100% of the car’s value, but economists advise that at least 20% of the car’s value should not be of the loan amount but of the loanee’s own money. Making the maximum down payment increases the loan amount, which thereby increases the interest’s value.
Tenure :
A common misconception is that choosing along tenure reduces monthly interest amount on large. Though it is true that a long tenure gives a low monthly interest amount each month, the total amount you’ll be paying as interest is higher than choosing a short tenure and paying a slightly high-interest amount every month.
Snowball payments :
This method is convenient if you have multiple loans. You can start by paying off the loan with the maximum interest amount or the loan with the smallest debt. If the former is chosen, you gradually move on to the next loan with the second-highest interest amount, so on and so forth. If the latter is chosen, you first pay off the loan with the smallest debt, then the debt with the comparatively high principal than first.
Debt consolidation :
This method is beneficial if you have multiple loans that are difficult to keep track of. That is if you keep missing interest payments and other charges you can combine all the loans to one single loan with paying only one interest rate and principal amount.
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