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Why Choose Shorter Tenure on Car Loan?

IndianMoney.com Research Team | Updated On Tuesday, May 28,2019, 04:11 PM

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Why Choose Shorter Tenure on Car Loan?

 

 

Banks are offering car loans and it’s time to buy your dream car. Before rushing to avail a car loan, answer this question. Have you checked the car loan interest rates offered by your bank?

Banks charge high interest on car loans. If your car loan is of a longer tenure, the interest outgo is high. Some private banks and even public sector banks offer car loans of longer tenure. Tenures range from 7-8 years.

Check with the financial advisor before availing car loans of longer tenure. There’s higher interest outgo on a car loan of 7-8 years, compared to shorter tenure car loans of 3-4 years. Calculate car loan EMIs on IndianMoney.com car loan calculator, before buying the dream car.

Want to know more on Car Loan? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

Why Choose Shorter Tenure on Car Loan?

Why Car Loan?

  • You enjoy flexibility in choosing the tenure. Tenures could range from 5-7 years.
  • Banks offer loans to avail used cars. The car age and model determines car loan interest rates.
  • Banks sanction car loans to those who have good credit score. Negotiate with the bank for lower car loan interest rates.
  • There’s no collateral required. The car serves as the collateral for the car loan.
  • If you are struggling with car loan repayment due to high interest charged by banks, opt for car loan balance transfer.

SEE ALSO: How to Choose Best Car Loan

Why Avail Car Loans of Shorter Tenure?

Car loans of shorter tenure have lower interest outgo. This is an excellent reason to avail them. The shorter tenure helps clear off the car loan, really fast. Do remember that car loans of shorter tenure have higher EMIs.

Let’s understand car loans of shorter tenure and interest paid with examples. You have availed a car loan of Rs 15 Lakhs and an interest rate of 11% at a monthly –reducing rate. Let’s calculate car loan EMIs on tenure of 3, 5, and 7 years.

Car Loan Tenure (Years)

Car Loan EMIs (Rs)

Total Interest

7

25,684

657,427

5

32,614

456,818

3

49,108

267,891

Why You Mustn’t Apply for Car Loan of Longer Tenure?

You notice that the car loan EMIs for a car loan of tenure 7 years is Rs 25,684. The interest paid on the 7 year car loan is Rs 6,57,427. This is 2.45 times the interest of Rs 2,67,891 paid on the 3 year car loan. (This is the car loan of shorter tenure).

Car Loans are a Heavy Financial Burden:

Car loans of longer tenure have higher interest outgo. This is why you must avoid them. Many car owners sell their cars second-hand, within 5 years. If the car loan has tenure of 7 years he/she has to repay outstanding car loan EMIs even after the completion of 5 years. In addition to all this, cars have higher maintenance costs after 4-5 years. These high maintenance costs in addition to car loan EMIs are a double whammy. This could place a heavy financial burden on your shoulders.

Higher Interest Rates on The Car Loan:

Banks charge higher interest on car loans of longer tenure. This is to make up for the additional credit risk banks have to bear on long tenure car loans. You pay 0.25 - 0.5 basis points higher on car loans of longer tenure. (1 basis point = 0.01%).

SEE ALSO: How to Apply for Car Loan?

The Car Costs Too Much

You may buy a car which just costs too much. Always buy a car you can afford or all the salary goes on car loan EMIs. Do remember the car is for commuting and not to show off.

If you buy a costly car, there’s no choice but to avail car loans of longer tenure. You would opt for this as car loan EMIs are low. Sadly, this backfires in the long run. You end up paying much more than the cost of the car.

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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