A car loan is one of the best options available if you want to get your dream car without waiting till you save up the entire purchase price of the car.
A car loan is one of the best options available if you want to get your dream car without waiting till you save up the entire purchase price of the car. With a rise in the number of lenders offering this type of loan, it has become very easy to opt for a car loan to fund the purchase of a car. A car loan is a secured loan, which means the car is hypothecated to the lender till the time the loan is entirely repaid.
When you opt for a loan, one of the most important things you need to consider is the instalment amount. Most loans are repaid in the form of equated monthly instalments or EMI. The EMI amount stays the same for the entire loan duration. However, the amount of principal repayment and interest payment that forms a part of each instalment differ. For example, in the initial months of repayment, the interest component is higher than the principal repayment. Whereas for the last few instalments, the principal repayment amount is higher. This information can be found out using a car loan EMI calculator. Some calculators also provide the breakup between principal and interest.
When it comes to the monthly instalment, there are two things that impact the instalment amount:
The rate of interest is not something that can be controlled when you apply for a car loan, however, one item that you can control is the car loan tenure. The monthly instalment amount is affected by the loan tenure to a great extent.
A longer loan tenure means a smaller monthly instalment amount. This is because the loan amount now has to be repaid over a longer tenure. This repayment period puts a smaller strain on monthly budgets since the instalment amount is smaller.
On the other hand, when the loan tenure is shorter, it means the loan has to be repaid faster. This means a larger proportion of the principal has to be repaid in a smaller amount of time which increases the instalment amount. This is why choosing the right tenure is very important. You must consider your monthly budgets, incomes and expenses before choosing the tenure so that you can easily service the monthly instalment amount.
It is easy to find out the impact of a car loan tenure on the instalment using a car loan EMI calculator. This calculator is available free of cost on the lender’s websites. This tool requires the car loan principal amount, the rate of interest and the loan tenure. Using this calculator, you can see the impact of the loan tenure on the EMI and accordingly make the right decision. Planning your instalments well can help you plan your monthly finances so that you can easily service the car loan.
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