Should You Transfer Your Car Loan?

Anmol Singh, 29, is a wedding photographer. A couple of years ago, he felt the need to buy his car as it would help carry his equipment and ferry his assistants. He opted for a Multi-Purpose Vehicle (MPV) priced at around Rs. 11 lakh.

Since he had started his business recently, and cash was a problem, he opted for a seven-year tenure. Four years since he bought the car, Anmol’s business has taken off and his earnings have increased significantly. He now feels that perhaps he should transfer the balance of his vehicle loan to reduce his interest rate and pay off the loan faster.
Anmol consulted a cousin who is a chartered accountant for his advice. This is what his cousin told him:

Check eligibility and interest rates:
Anmol should first check with his bank and a few others to check his eligibility for a Balance Transfer Car Loan and the interest rate he is likely to be charged.

Calculate savings:
Even if Anmol could get a Balance Transfer Car Loan at a lower interest rate, it is essential to calculate what his savings would be. In any loan repaid through EMIs, interest is front-loaded in the installments. This means that each EMI has a higher proportion of interest in the initial period than the principal component. On a loan of Rs. 11 lakh at 11% interest for seven years, Anmol’s total interest is Rs. 4.82 lakh. Out of this, in the first two years of servicing the loan, he would have paid about Rs. 2.17 lakh as interest. Therefore, it would make sense for him to transfer the car loan only if the total interest he will pay on the new loan would be less than Rs. 2.65 lakh.
While calculating his savings, he should also check on foreclosure fees. These generally tend to be 5% of the principal outstanding.

[Also Read: Apply for an Instant Car Loan Online Anywhere, Anytime]

Axis Bank offers excellent deals on Car Loan Balance Transfers.

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