One of the most significant investments in life is buying a car, second only to purchasing a house. Since it is an expensive purchase, most people prefer taking a loan to finance the same, whether it is a new or a second hand car that they are considering. While a car loan definitely eases the financial burden of bearing the cost of purchase, you still need to repay the amount over time together with interest.Therefore, it is crucial that you understand all the aspects before applying for a car loan to prepare yourself for the repayment process.
Several borrowers believe that their job is done when they apply for a car loan. However, the most crucial part of a car loan is the repayment of the principal and the interest. That is why you must carefully choose among the various types of car loan repayment options.
Below mentioned are some of the most critical things to know about car loan repayment:
- Car Loan Repayment Types
These are the six widely available repayment plans:
- Normal EMI
A recurring installment balance is calculated based on maturity and interest rate, which is the most prevalent form of repayment. EMIs are billed either at the start or end of each month.
- Step-Down EMI
In this method of repayment, the sum of EMI slowly decreases from a larger to a smaller amount. The EMI reduces according to the number of contributions made.
- Step-Up EMI
The original EMI is paid less than phase up EMI, and it increases, depending on the fact that the borrower ‘s salary always rises. The EMI change will usually arise annually over the entire lending period.
- Special tie-up Method
In this method, both the dealer and the bank have a tie-up,and they allow you to prepay the car loan if you have surplus money in a month. It helps you raise the principal and decrease the net interest.
- Balloon EMI
As per this method, you can make lump sum payments after the repayment period has started. The process of ballooning decreases the initial pressure of a mortgage loan.
With banks giving you a choice to pick a suitable form of financing, you will be able to zero-in the right arrangement depending on the amount of interest given, the loan quantum and your financial condition.
- Car Loan Repayment Schedule
A calendar or timetable for the amortization of car loans will display how the EMIs are used each month to pay back the principal and interest. A calculation of the car loan repayment timeline will give you information on the EMIs, interest on the remaining balance and also whether the balance falls annually due to the EMI fees.
- Car Loan Repayment Calculator
These days several financial institutions like Axis Bank offer simple EMI calculators that will help you schedule your monthly EMI depending on the interest rate. Thereby, it enables you to determine the right loan amount and interest rate for your vehicle. Look out for payment costs because different borrowers charge different rates and thus, a review of choices available will help you make an informed decision.
Similarly, you would even need to look at service tax, whether it needs to be paid as a one-time lump sum charge or on an annual basis. One more critical element to look at is the penalty for the mortgage. Most borrowers are unaware of the foreclosure clause, and it is essential to select the lending institution carefully because each one of them usually has different foreclosure levels.
Be mindful of these factors that can impact your finances adversely during the repayment of your car loan amount. Car loans,as offered by reputable financial institutions such as Axis Bank offer you attractive interest rates starting at 9.25% p.a. Along with this, they provide the flexibility of amount and tenure. With loan amounts starting from Rs. 1 lakh for some time up to 8 years, Axis Bank also offers pre-approved loans. It means that you do not need to produce income documents or bank statements. So, don’t wait and explore car loans for a quick and cost-effective way to own your dream car.