Ways to Reduce Car Loan EMI Payments

In this day and age of easy availability of car loans, almost every home has a car loan. While the easy availability and flexible eligibility has made sure that a vast majority of people have been able to relive their dream of owning a car, it also means an added monthly burden of equated monthly installments. Ideally for any loans, EMI must not exceed more than 40% of the gross monthly income in order to facilitate financial balance. In their quest to get a car loan, a lot of enthusiastic loan seekers do not give due significance to monthly EMIs they would end up paying for the loan. Before signing on the dotted line for any loan especially a car loan, it is recommended to check the on the Car Loan EMI and opt for a loan only of the monthly payments are under a comfortable limit. Here are some ways to reduce the car loan EMI payments.

The best way to have a lower equated monthly installment or Emi is to borrow less for the car loan. This would mean paying a higher quantum of money upfront as down payment for the car loan. Usually banks seek 10% of the car ex showroom price to be paid by the loan borrower upfront. The rest of the amount is approved as car loan and an EMI is calculated considering the loan tenure and the rate of interest for the loan. Loan EMI and down payment for the car loan have an inverse relationship. The higher the down payment for the car loan, the lower is the loan amount and EMI.

Before signing up for any car loan negotiating with the bank for car loan interest rate is recommended. Usually banks offer a discount for car loans under various festive offers and limited period schemes. If you are seeking a car loan closer to any such offering, it is advisable to wait for a few weeks or request the bank to consider your loan as one offered under the scheme to avail discounted interest rates. Public sector banks usually offer slightly lower car loan rates than private banks and non banking financial companies.

Another way to offset or reduce the car loan EMI is to opt for a long tenure car loan. The longer the tenure, the smaller is the monthly EMI. While this method may reduce the monthly expenses leading to smaller EMI, it is detrimental in the long run as high tenure would escalate the final cost of the car substantially.

While most car loans offered in India are facilitated through regular EMIs where a fixed rate of interest is decided to calculate the EMI by taking into account the loan tenure. Installments are allowed to be paid as monthly in advance or monthly in arrears. Before signing up for a car loan, make sure to seek a step down EMI option which can be a good way to offset the burden of high EMIs. In step down EMI option, the EMI is gradually reduced from being highest at the first repayment. Over a period of time the EMIs are reduced gradually. Since higher EMI upfront mean the principal amount is repaid faster, the total cost of the car loan using step down EMI option is less than normal EMIs.