5 ways you can close your car loan faster
It’s no secret that owning a four-wheeler is a dream for many. While for certain a two-wheeler can get you to point A to point B much quicker, the perks that come with a four-wheeler are always enticing. You could take long drives when you feel like and not feel the stress of the distance, swing your windows up when stuck in a jam - saving you from the reckless honking and the pollution, and the best of all, you could play music while travelling.
Most people usually set their minds on a car, and are incorrigible once the decision has been made - whether they have the finances or not. Firstly, it is important to be realistic when buying a car, and if you have taken a loan to get your dream car, there are a few areas you’ll have to look into - to ensure that your loan is paid faster that normal and you save end up saving some money.
We’ve listed 5 points you would need to take into consideration when availing a car loan and how you could repay your loan faster.
Take care of the components that affect the interest rate on your car loan
Most people leave the banks or the credit lenders to do all the calculations and estimations, resulting in them availing a car loan at a higher interest rate. When availing a car loan, ensure that you first check your credit score. Having a low credit score will result in you availing a car loan at a much higher interest rate. Ensure that your credit score is optimum before availing a loan as a higher interest rate adds to your expense. You could also make a down payment north of 20% - which would result in your availing a car loan at a much lower interest rate.
Be realistic when buying a car
Always a choose a car that you can realistically afford. Before availing a loan for the car, make EMI calculations to kind of know how much you would have to spend on a monthly basis. Ensure that your debt-to-income ratio does not cross 40% of your net monthly income. A lot of people choose a car above their financial capabilities, resulting in the debt-to-income ration crossing 50%.
Got bonus cash? Dump it into your loan fund
A lot of companies pamper their employees with a yearly bonus - depending on their performance. Well, if you do get a bonus, rather than blow it away, put into your loan repayment fund. This will help you close the loan sooner than the expected end of the tenure, giving you the option of investing in something else for a change.
Do not avail another loan
Once you a loan has been availed, most people take the whole nature of it casually and don’t think twice before availing another loan. Though your second loan over the car loan might be approved by banks and credit lenders, it is not advisable. Having two loans running simultaneously will surely increase your debt-to-income ratio, resulting in you not having enough money for other needs at the end of the month. Having a second loan might add to your financial burden, increasing of you failing to make payments to either of the two loans. In short, always completely one loan before availing another.
Plan your finances for the month
When you have a loan running, always make it a point to pay your finances. The first priority should be paying the EMI of the loan and segregate the rest of monthly income to pay other utility bills and your personal needs. Have a fixed plan will help you seamlessly clear your EMI as well as pay for your other requirements.
Always keep the tenure short
Unlike assets such as a house and so on, the value of a car depreciates as the years pass by. Paying for a car loan for a tenure of 5 years in most cases does not make sense as your car might be fit for the dump yard by the time you’re done paying for it. In addition, choosing a shorter tenure will result in saving money on the whole, as the longer you keep the loan running, the more you will have to repay the bank. That said, choosing a shorter tenure for your car loan will result in you paying higher EMIs towards the loan, so make the decision wisely.
Lastly, buying a car takes quite a bit of financial planning if you wish to save some money and have some money for your personal requirements. To make things simple, you can visit financial portals such as BankBazaar. On the BankBazaar website, customers can compare car loan offers by its partner banks and top NBFCs. Customers can also make EMI calculations before availing a car loan and can also check their CIBIL score.