The trend of car loans is growing fast in India. A majority number of car purchases are done through car loans. While buying a car, we definitely tend to do good research on the car models and how they work. But do we pay enough heed to understand how car loans work?
When you take a car loan, you receive a lump sum from the lender who also charges interest on the loan amount. In India, you can receive about 85% of the car cost from financial institutions. This is in case the car is brand new. For older car finance, you will get much lesser percentage of the price as a loan. And you need to pay this amount back with interest in Equated Monthly Instalments (EMIs).
So, let’s say, Rohan books a brand-new car for INR 12.5 Lakhs, with a good credit score, he is eligible for a loan of INR 10 Lakhs.
How does Monthly Repayment of Car Loan Work?
The monthly payment depends primarily on the principal amount borrowed, the interest rate as well as the loan tenure. You can arrive at the monthly payment figure by using car loan emi calculators.
Let’s say in the above example, Rohan availed a car loan of INR 10 Lakhs at an interest rate of 9.5% for a loan term of 5 years.
As per the EMI calculation method shown in this article, the monthly payment on the loan comes out to INR 21,002.
Points to Consider for Availing a Car Loan
Here is a definite list of points you should consider before opting for a car loan:
- A lower loan amount will save you from higher monthly payments. Suppose in the above example, Rohan had to pay INR 2.5 Lakhs as a down payment by himself. Instead, if he paid INR 5 Lakhs upfront, he would’ve had to take a loan only of INR 7.5 Lakhs. This would reduce his monthly payment to INR 15,751.
- Car loans interest rates currently range from about 9.25% to 10%. A lower interest rate means you will reduce the lender charges for the loan. Instead of buying it at a rate of 9.5%, if Rohan negotiated for a better rate of 9%, he would save about INR 244 every month.
- A longer loan tenure would reduce your monthly burden. However, in the longer run, over the life of the loan, you will end up paying much more. Suppose Rohan availed a 7 years tenure instead of 5 years, he would save about INR 4913 every month in EMIs. But if you see across the complete tenure, he would end up paying INR 1,12,782 more than in a 5 years tenure.
Opt for an Instant Digital Car Loan
Now that you are aware about how car loans work, you must do your base research and calculation before opting for a car loan. In this digital age, applying for car loans is just a matter of a few clicks on your computer or phone. PaySense offers you attractive instant loans of up to 2 Lakhs which can be used for car purchase. With quick disbursals and one-time documentation, you can enjoy the benefits of a loan with low EMIs. You can also consider instant personal loan from Paysense by following 3 simple steps mentioned on the website.
Apply for Loans of upto ₹5 Lakhs easily using your phone or laptop, and pay back on low EMIs