The cost of four wheeler is very high. And if you are planning to take a loan and include other charges such as interest rate, processing fee, etc. the overall cost further increases. And all these charges are unavoidable. And that’s how lenders earn profit.
So how to save money on car loan?
When considering taking loan for car (new or second hand), you should look for following ways to save money:
Make higher down payment: Make as much down payment possible. So for e.g. if cost of car is Rs. 7, 00,000 (7 Lakhs) and bank is ready to offer 100% loan amount. Then you will have to pay interest on the whole amount i.e. Rs. 7, 00,000. However if you make a down payment of Rs. 2, 00,000; then your monthly EMI burden will straightaway reduce. This is because you will be paying interest on the borrowed amount of Rs. 5, 00,000 only. So try to make as much down payment possible. Utilizing the money received via bonus or salary increment or others should be used to contribute for the down payment.
Make full or partial pre-payment: It is also called as loan foreclosure. Try to make all the loan EMI repayments as early as possible. Even before the standard tenure ends. It definitely saves you money. However check with the lender on the pre-payment penalty and calculate the total saving. The difference should make sense. In either case, early loan closure is always recommended as this is considered as a good credit behavior. It is a positive signal to the credit bureaus giving credit score. Money received through bonus or salary increment should be first used to pay-off the debt. If not 100% prepayment, try to make partial pre-payment.
Check out minimum income required for car loan.
Choose low interest loan: Opt for lenders offering lowest interest rate. If you are an existing customer with the lender then bargain on interest. If you are in the good books of the lender then chances of low interest are high. Instead of losing a customer because of interest rate, they would be reduce the same and retain you.
Latest – 2017 car loan interest rate on new and used car.
Research and then buy: Never fall into the trap of the car dealer claiming to offer car loan at cheapest rate. Always do your own research and check what other lenders are offering. Factors to compare are interest rate, processing fees, pre-payment charges etc. Remember it’s your money.
Opt for short tenured loan: You should try to reduce the repayment tenure to as short as possible. Longer the tenure, higher would be the interest paid and the total cost of four wheeler will further increase. Objective is that your purchase should not become costly.
Know the hidden charges: Apart from the interest rate, banks also apply processing fees, pre-payment penalty, and many others. First of all, you should be aware of all these charges. And if you are an existing customer with the bank with good credit history; then ask them to reduce or remove all these charges. Even if one of the fee is removed or fee is reduced; reasonable amount of money will be saved.
Loan transfer: Although it is not very easy, but if other bank is offering cheaper rate then you should transfer the loan. You will have to pay a penalty. But if the total saving is higher, then definitely you should opt for car loan transfer.
Read tips on choosing car loan or personal loan for car.
Opt for fixed or floating rate: There are two types of interest rate applied fixed and floating. In case of former, the interest rate is constant throughout the tenure. And in case of latter, it keeps on changing. However if the market trend estimates that loan rates may fall in the coming time, then opt for floating rate as your EMI would be low. However if you do want to take risk, then opt for fixed interest loan. Very few banks offer these two options. Otherwise fixed rate is most commonly applied.
Check your CIBIL score before applying: The most important thing to do is to get credit report from CIBIL or other credit bureaus. And verify whether the details are correct or not. Many a times; credit data reported by member banks to CIBIL are inaccurate. So if you apply for loan and banks see incorrect data, then chances of loan rejection increases. And even if banks are ready to provide loan even if the CIBIL score is poor (although the chances are low), the interest rate will be on a higher side. So if your CIBIL score is poor then first work towards it’s improvement. And then apply for loan.
Remember money is money – whether small or big. Always try to save money wherever possible.