Buying a new car is a happy moment for everyone, but when this purchase is done through a car loan, then a little wisdom becomes very important. Often people finalize the loan just by looking at the low EMI, whereas the real expense is hidden in the interest, charges and loan terms.
If these aspects are ignored, today’s happiness can turn into financial pressure in the future.
See the total payment amount, not just the interest rate
While taking a car loan, focusing only on the interest rate is not the right approach. The interest rates of two banks may be the same, but the total payment may vary significantly due to loan tenure, processing fees, file charges, GST and other charges. Therefore, before taking a loan, definitely ask how much money you will have to pay in the entire loan period.
Higher down payment will reduce expenses
Low down payment seems easy in the beginning, but it increases the loan amount and also requires paying more interest. If you make more down payment in the beginning, your EMI will be less and there will be significant savings in total interest also. So don’t be limited to just the minimum down payment.
Choose the right loan tenure
Long term loan definitely reduces the EMI, but it increases the total interest significantly. Whereas, short term loan makes the EMI a bit heavy, but you become debt free quickly. It is better to choose a balanced period considering your monthly income, expenses and savings.
Check pre-payment and foreclosure terms
If you want to repay the loan early in future, pre-payment and foreclosure charges play a big role. Many banks charge higher penalties in the initial years. Therefore, read these terms of the loan agreement carefully.
Caution in insurance and extra packages
Expensive insurance and extra packages are often bundled with showroom finance. Remember, you can take insurance from outside also. Spend only on essential things.
A car loan taken wisely not only saves money but also gives mental peace in the long run.