Buying a car is a costly decision. However, whether you plan to purchase a used or a new car, you can own it without using up all your savings. This is possible due to a Car Loan. This Loan offers multiple advantages to applicants and lets you effortlessly opt for a car with a little bit of planning. However, when you apply for one, you should know about the equated monthly instalments that you need to pay.
These EMIs are affected by three main factors. Let us understand Car Loan EMIs better and consider the key factors that influence them.
What is a Car Loan EMI?
A Car Loan is the credit you take from your chosen bank to buy a car. When you opt for this Loan, your bank pays the dealer the price of your vehicle upfront. On the other hand, you need to repay the bank the entire Loan amount along with the fees and interest that are applicable to it. You need to repay this using EMIs.
Hence, your Car Loan EMI is the sum you need to pay the bank every month against the money you borrowed from it to buy your four-wheeler. These monthly instalments include the principal sum and the interest component. In the beginning, your EMIs will mainly have the interest amount. As you get closer to the end of the term, the principal goes up.
Primary factors affecting Car Loan EMIs
The EMIs of your Car Loan depend on three crucial factors:
- The Loan tenure
The tenure is the duration for which you want your repayment to last. A longer tenure can decrease your monthly instalment. However, it increases the amount you need to pay as the overall interest. Conversely, the EMI amount is higher if you opt for a shorter tenure. However, it reduces the overall Loan costs.
- The principal
This is the total sum you wish to borrow from your chosen bank. This includes the cost of the car you want to buy minus the downpayment. The Loan amount you borrow directly influences your monthly instalment. For example, suppose you want to borrow a sum of Rs.10 lakh from your chosen bank for three years.
In that case, the EMI will be higher than if you borrowed Rs. 6 lakh for the same tenure. So, if you want to reduce your EMI, opt for a smaller sum.
- The interest rates
The Car Loan interest rate is the rate charged by your bank when you borrow money from them. It typically varies across banks, and you should preferably opt for a lower rate. This is because it results in a smaller EMI amount.
Conclusion
As evident, your Car Loan EMI is affected by three factors. Today, you can easily use an online calculator to experiment with various Loan tenures and amounts to reach a manageable EMI.
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