If you are looking for ways to reduce the Equated Monthly Installment (EMI) on your second-hand car loan, you must keep in mind certain factors. Here are five tips that will help you decrease the auto loan EMI.
1. Consider the loan tenure
Banks and Non-Banking Financial Companies (NBFCs) generally offer car loans for as long as five years. It is common that you opt for longer loan tenure to reduce the EMI. However, by doing so, you pay more interest over the loan tenure. The EMI comprises a higher component of interest instead of principal, which results in you paying more than the worth of the car.
2. Seek pre-approval
It is advisable to seek pre-approval for the loan before you start looking for the vehicle. You may check for the pre-approval for a used car loan online. Being pre-qualified for a loan will put you in a stronger position while negotiating with the dealer. You may be able to reduce the purchase price of the car and negotiate a better financing deal.
3. Determine the total cost of borrowing
You may think that the only cost you will incur when you apply for a used car loan is the interest. However, there are other expenses, such as processing fees and legal charges. In addition, the lender may levy late payment fees or prepayment penalties. All these additional expenses increase your total cost of borrowing. Therefore, checking these charges before accepting the offer is important.
4. Pay higher down payment
It is recommended you pay a higher down payment if your financial situation allows for the same. When you choose to pay a lower down payment for the car, you need to apply for a higher loan amount. This increases the EMI, which in turn enhances the total value you pay for the vehicle.
5. Purchase a vehicle that is within your budget
You may want to purchase a car that is more expensive than what you could afford. It is important that you determine a loan amount that you are able to repay without facing financial difficulties. Experts recommend purchasing a vehicle that is within your budget and opting for a loan that may be repaid in full within five years to avoid liquidity crises in the future.
You may apply for a used car loan from several lenders. However, it is crucial that you carefully review the loan documents to ensure there are no underlying terms and conditions. You must check if there are any large financing charges, credit insurance requirements, or other limiting conditions that are detrimental to you.