Tips to Select the Ideal Car Loan Tenure

Owning your dream car was never easier with banks and non-banking finance companies offering affordable and convenient auto loans. When you are looking for a loan, you will often check the rate of interest, equated monthly installment (EMI), and the amount.

An often overlooked consideration is the loan tenure. However, this is also an important factor that will affect your decision.

What is car loan tenure?

The car loan tenure is the maximum number of years during which you will repay the borrowed amount in EMIs. The longer the loan duration, the lower will be your EMI and vice-versa.

Therefore, you would think that a longer duration is beneficial, as it reduces your monthly outflow. However, one of the biggest drawbacks of a longer loan tenure is that it significantly increases the total interest you pay towards the borrowed amount.

How to determine the ideal car loan tenure

You can use an online car loan EMI calculator to find out the approximate installment amount based on the borrowed value. With the help of this calculator, you can easily determine the EMIs based on different loan durations.

Here are three tips to select the most appropriate loan tenure, which reduces your total interest payout while ensuring you do not face any difficulties in paying the EMIs on time:

  1. Determine your monthly surplus

Based on your net monthly income and total expenses, you can identify the surplus amount available towards the car finance EMI. While calculating the expenses, include your investments through systematic investment plans (SIPs), other loans EMIs, and insurance premiums to know the available surplus.

  1. Calculated future cash flows

If you are expecting to receive a hike in salary, you may be able to pay a higher EMI, which means you may reduce the loan tenure. Alternatively, if you expect to incur a large expenditure, it may be more appropriate to choose a longer duration to reduce the EMI.

  1. Inquire about prepayment-related charges

In case you have a lower monthly surplus, you may opt for a longer tenure to reduce the EMI. However, you may reduce the interest payout by prepaying the car loan online before the end of the tenure. However, check with your lender for any prepayment penalties.

Several leading lenders, like Mahindra Finance, offer affordable loans with flexible repayment options. Check your car loan eligibility criteria on its website and drive home your dream vehicle.