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Car Loan
Short term vs long term Car Loan: Which saves you more money?
This car loan EMI guide will come in handy when choosing short- and long-term car loan tenures. Get expert insights to make the right choice.
Key takeaways
- Short-Term (1-4 Years) = Lower total cost and faster debt servicing, but comes with higher EMIs
- Long-Term (5-7 Years) = Lower EMIs and more flexibility but may cost more due to more interest paid
- Hybrid Approach = Best of Both Worlds
Putting the pedal to the metal has its unique thrill and incomparable adrenaline rush. If you aspire to live in the fast lane, you would have definitely thought of bringing home your own car. But here, you need to balance ‘want now’ and ‘pay later’ by examining the right type of car loan.
In India, you can take out a short-term or long-term car loan. Choosing between these two types of financing for your car isn’t just about numbers. You must align the right option based on your financial personality and life goals.
Your car loan tenure (repayment period) can be between 3 to 7 years, depending on your chosen tenure type.
Let’s set out on this journey to find the right type of car loan tenure among these two options.
Short-term loan – Fast track to ownership
Do you aspire to pay off your loan in 1 to 4 years? Then you can sprint your way with a short-term car loan.
Short-Term Car Loan (1-4 Years)
| Pros | Cons |
|---|---|
| Lower total interest paid | Higher monthly EMIs |
| Own car faster (1-4 years) | Tighter monthly budget |
| Better resale flexibility | Less cash for other goals |
This type of loan is suitable for those with above-average incomes who can easily pay off the higher EMIs every month. It is also good for those who dislike long-term commitments.
Now, let us look at long-term car loans.
Long-term loan – The ownership cruising experience
Here, you can stretch your repayments from 5 to 7 years. The upside is that you have lower monthly repayments to take care of. Let us explore its pros and cons.
Long-Term Car Loan (5-7 Years)
| Pros | Cons |
|---|---|
| Lower monthly EMIs | Pay more interest overall |
| Easier to qualify | Longer debt commitment |
| More budget breathing room | Risk of negative equity (car depreciates faster than loan balance) |
| Flexibility for other expenses | May delay future financial goals |
This type of loan is suitable when you need to prioritise cash flow every month over the total cost calculated later. Those with uncertain or low income can opt for a car loan with a long-term repayment plan.
Let us see how these two-options stack side-by-side.
Side-by-Side: Your Car Loan options at a glance
| Factor | Short-Term | Long-Term |
|---|---|---|
| Monthly EMI | Higher EMIs (but fewer of them overall) | Lower EMIs (more payments) |
| Total Interest | Less (save money) | More (pay extra) |
| Total Interest | Less (save money) | More (pay extra) |
| Ownership Timeline | Faster | Slower |
| Budget Impact | Tight now, free later | Easier now, costlier later |
| Best For | High earners, quick owners | Budget-conscious, long-term planners |
Hybrid approach – A smart alternative
Don’t let analysis paralysis strike you when choosing between the two. A smarter way would be to use a hybrid approach that offers the best of both types of tenures in car loan financing. This way, you can balance out high EMIs and long-term interest payments.
You would start with a longer EMI tenure (say, 7 years) to keep your initial EMIs affordable. Then, you can make strategic extra payments whenever possible.
As a result, you reduce your total interest burden without the sky-high monthly payments.
This works well for first-time buyers or those expecting a salary hike in the next appraisal cycle. It is a loan that can be recalibrated according to your financial capacity.
In a nutshell, the hybrid approach works well because of this tactic:
- Start with a longer tenure (7 years) for manageable EMIs
- Make extra payments whenever you have bonus cash
- Reduce total interest without straining your monthly budget
How can you choose between the two types of car loan tenures?
Do you need more clarity in picking one of the two options? Then, answer these questions and prevent loan headaches from troubling you.
| Question | Short-Term Fit | Long-Term Fit | Hybrid Fit |
|---|---|---|---|
| Income stability? | Steady, high income | Variable/entry-level | Expecting raises |
| Future big expenses? | None planned | Wedding/home loan ahead | Maybe later |
| Car upgrade plans? | Every 4-6 years | Drive till it dies | Depends on value |
| Risk tolerance? | Hate debt | Prefer safety | Flexible |
| Extra cash usage? | All into loan | Invest/save | Split both |
If your answer fits in one of the three groups for three or more questions out of the five, then you will make the right choice by selecting that group.
Conclusion
Use this guide to understand what car loan tenures are available. It will also help you pick one from long-term or short-term car loans. The choice depends on your financial lifestyle and ongoing or upcoming commitments. This way, you will choose wisely and hit the road happy!
Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.
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