Buying a car requires a financial commitment. It includes a considerable cost and if you want to buy the best, the costs could escalate further. Sometimes, not having sufficient funds can put a dent in your dream of owning a car. This is where a car loan comes to your rescue. The loan provides you an easy source of funds so that you can buy the car that you want to buy, without worrying about its affordability.
What is a Car Loan?
A car loan is a loan granted to buy a car. You can buy a brand new car or a used one through the car loan. You can avail of a car loan to finance upto 90% of the on-road price of the car. The remaining amount should be paid by you as a down payment. You can choose the loan tenure and can pay off the loans through Equated Monthly Instalments (EMIs).
Car loans are popular among car buyers because of the following reasons.
- They are easily available. Both banks and Non-Banking Financial Companies (NBFCs) offer attractive car loans.
- Car loans are secured against the car and so, they have low and affordable interest rates.
- Car loans offer flexible repayment tenures to repay the loan.
- A large chunk of the car’s cost, usually upto 90%, can be financed through the loan.
- You can also opt for prepayment of the loan, partially or fully, during the loan tenure. Prepayment means paying the loan before the scheduled date
- You can finance any car through a car loan.
So, if you are eyeing a new car or want to buy your first car, you can opt for a car loan and buy the car that you want. Though car loans are easily available, you should keep an eye out at the prospective EMI when availing of the loan.
What is EMI for a Car Loan?
EMI is the monthly instalment that you pay to repay the loan. It consists of both the principle and the interest payable on the loan.
Calculation of Car Loan EMI
The EMI of your car loan can be calculated using a mathematical formula which is as follows.
EMI = P * R * [{(1+R) ^N} / {(1+R) ^N – 1}]
In this formula, ‘P’ is the amount of loan that you have availed of, ‘R’ is the interest rate and ‘N’ is the repayment tenure in months.
If the above calculation looks difficult, you can take the help of any of the online tools that allow you to calculate EMI payable towards the loan based on the inputs shared by you.
- Loan or the principal amount
- Repayment tenure
- Interest rate
How to Get the Lowest EMI on Your Car Loan?
The EMI of the loan can be adjusted according to your affordability. Here are some tips on how you can get the lowest EMI on your car loan that is also affordable on your pockets.
- Opt for a longer repayment duration. As the repayment tenure increases, the EMI reduces.
- Try and make a higher down payment, if you have surplus funds. This would reduce the loan quantum as well as the EMI.
- Hunt for lenders that offer the lowest interest on their car loans. As the interest rates are reduced, your EMIs would also fall.
- Try and prepay the loan partially over the repayment tenure. This means making a lump sum payment on the loan. This payment would reduce the outstanding loan amount, and so, the EMIs would also reduce.
Always ensure that the EMIs are affordable when you are availing of a car loan. Since EMIs are a long-term commitment, their affordability is of utmost importance. If the EMIs are not affordable, you might face financial difficulties in repaying the loan. Moreover, you might even default on repayments. If that happens, the lender would repossess your car and sell it off to realize the outstanding balance of the loan, something that you should avoid.
How to Get the Best Car Finance Scheme?
If you shop around for the best finance scheme for your car, you can reduce the EMIs. This is because when you compare, you can look for loans with low interest rates. So, here are some tips using which you can opt for the best car finance scheme.
Check the Eligibility Parameters of Different Lenders
Every lender sets forth some eligibility criteria. Only if you fulfil such criteria, you can avail of the car loan. So, the first step is to shortlist which lender’s eligibility parameters you meet.
Check the Loan Quantum
The next step is to check how much loan the lender is offering. There is a Loan to Value (LTV) ratio under the loan. This ratio tells you what percentage of the car’s cost would be financed by the lender. For example, if your car costs Rs. 10 lakhs and the LTV ratio is 80%, you would get a loan of Rs. 8 lakhs. The remaining Rs. 2 lakhs you would have to pay yourself. So, check this ratio. Lenders with the highest LTV are better as you can get a higher loan amount from them.
Check the Interest Rate
The most important thing to check is the interest rate charged for the loan. Compare the interest rates of different lenders. Then, opt for a loan that has the lowest interest rate so that you can get the best deal.
Check for Hidden Charges
Besides the interest rate, there might be other hidden charges associated with the loan. Check such charges. Try and choose a lender that does not have hidden charges. Moreover, other fees and charges associated with the loan should also be low. For instance, when AckoDrive helps you with financing through its finance partners, there are no hidden charges and you get the most transparent deal for your car.
Check the Repayment Flexibility
Check for flexibility in the repayment of the loan. Lenders with flexible repayments are better since you can repay your loan more conveniently.
Compare the Processing Time
Lastly, check how soon a lender processes and issues the loan. Lenders with the shortest processing times are the best since you can get your car at the earliest.
Keep these points in mind and shop around for the best loan scheme. Also, keep the EMI in mind when availing of the loan and try to get the lowest EMI to spare your pockets from any financial strain.
Frequently Asked Questions
Below are some of the most commonly asked questions and their answers on best EMI and finance scheme
What would happen if I default on the EMI payment?
If you default on the EMI payment, an additional late fee would be payable on such default. Moreover, your credit score would also be hampered.What would happen if I fail to repay the car loan?
When you avail of a car loan, the car gets hypothecated in the name of the lender. This hypothecation means that the lender has ownership rights on the car till the loan is repaid. Thus, if you fail to repay the car loan, the lender would repossess the car and sell it off to realize the outstanding loan amount.Do online EMI calculators charge a fee for EMI calculation?
No, online EMI calculators are completely free of cost. They do not charge any fee for EMI calculation, irrespective of the number of times you use them for calculating the most suitable EMI.How are car loan EMIs paid?
You can pay the EMI through cash, cheque, demand draft, NEFT/RTGS, mobile wallets, UPI, net banking facility and other digital payment modes. However, most lenders prefer you to pay EMIs through a Standing Instruction or ECS facility wherein the EMI amount is directly debited from your bank account on the scheduled date. This helps prevent the chance of a default.
