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Understanding Car loan tenure
Car Loan tenure directly impacts the Equated Monthly Instalments (EMIs) you pay. Choosing the appropriate tenure ensures that the EMI fits comfortably within your budget. It also influences the total interest outgo on your loan.
Lenders typically charge higher interest rates on loans with longer tenures. This means that choosing the Car Loan max tenure may result in significantly higher overall interest costs in comparison to shorter tenures.
Although shorter tenures lead to higher monthly EMIs, they allow you to become debt-free much faster, saving you money on interest in the long run.
What does Car Loan tenure mean?
Car Loan tenure is the total period in which you have to repay the borrowed money for your car. It's essentially the duration of your loan agreement with the lender.
Axis Bank offers New Car Loans with comfortable tenures extending up to 7 years. The loan amount can range from ₹1 lakh to cover the entire on-road price of your chosen vehicle. You can use the bank's Car Loan Calculator to explore different loan amounts and repayment periods and find the perfect fit for your budget. Axis Bank even provides special benefits, including lower interest rates, for eco-conscious drivers opting for electric vehicles.
Why is the tenure of your Car Loan important?
The tenure of your Car Loan significantly impacts several factors, including:
- EMI: Longer tenures lead to lower EMIs but higher total interest paid. Conversely, shorter tenure means higher EMIs but lower total interest.
- Debt duration: A longer tenure keeps you in debt for a longer period, while a shorter tenure allows you to become debt-free faster.
- Car ownership: Until you fully repay the loan, the car ownership remains with the lender, and you might have limitations on selling or modifying it.
Maximum tenure for Car Loan
Car loans offer options to repay over different timelines. Opting for the maximum repayment tenure has both pros and cons:
Pros
1. Lower monthly expenses: Longer tenures result in lower EMIs, which reduces stress on your monthly budget. 2. Repayment flexibility: Banks allow pre-payment or foreclosure options even with longer tenures, giving you more control over the loan. 3. Opportunity to invest: With lower EMIs, you can adjust your monthly expenses and invest surplus cash in high-return-generating avenues.
Cons
1. Added interest charges over time: Longer tenures result in increased interest charges. For example, extending a loan from 3 to 5 years can increase the total interest cost by a significant amount. 2. Longer periods of debt: The maximum tenure of Car Loans means it takes more time to become debt-free and apply for a fresh loan.
Long-term vs short-term tenure: Which one is better?
Choosing between long-term and short-term Auto Loan tenures depends on your affordability and goals.
Long-term Car Loans offer lower EMIs, reducing the immediate burden on your finances. However, they come with higher overall interest costs due to extended payment periods.
Short-term Car Loans have higher EMIs but allow you to become debt-free faster. They strengthen your CIBIL score, making it easier to get loans in the future. However, they require a higher repayment capacity and can cause financial stress if not managed properly.
Factors to consider before choosing a Car Loan tenure
- Monthly repayments: A shorter tenure will result in higher EMIs, but you'll pay off the loan faster and save on overall interest. A longer tenure will have lower EMIs, but you'll end up paying more interest in the long run. Choose a tenure that fits comfortably within your monthly budget.
- Total loan cost: Consider the total cost of the loan, which includes the principal amount, interest, and any additional fees. A shorter tenure will generally have a lower total cost due to less interest paid.
- Income stability: If you have a stable income and are confident about meeting higher EMIs, a shorter tenure might be suitable. If your income is less stable, a longer tenure with lower EMIs might be more manageable.
- Future financial goals: Consider your other financial goals, such as saving for a down payment on a house or retirement. A shorter loan tenure might limit your ability to save for other goals.
- Interest rates: Longer tenures often come with slightly higher interest rates. Compare loan offers from different lenders to get the best possible rate for your chosen tenure.
- Car value: The value of a car depreciates over time. With a longer tenure, you might end up owing more on the loan than the car is worth.
- Your personal preferences: Consider how long you plan to keep the car. If you plan to keep it for a long time, a longer loan tenure might be more manageable.
By carefully considering these factors, you can choose a Car Loan tenure that is both affordable and financially responsible for your situation.
Also Read: How to pay your Car Loan early
Wrapping up
Choosing the ideal Car Loan tenure is crucial to managing your finances effectively. While longer tenures offer lower monthly payments, they come with the burden of higher total interest. Conversely, shorter tenures necessitate higher monthly payments but ultimately save you money on interest. Consider factors such as interest rates, repayment capacity and financial goals before deciding on the tenure. Remember, the best tenure is the one that aligns with your financial goals and comfort level.
Apply for an Axis Bank Car Loan today and drive your dream car home!
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
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