New Delhi [India], April 22: You’re excited about your car purchase and happy with the wise decision of choosing a used model. Add a loan to the mix, and the financial burden becomes manageable. Getting a four-wheeler no longer feels out of reach. The series of wise decisions comes full circle with EMI planning. You want to choose an EMI that is manageable yet practical. How does that work? Learn here.
Importance of choosing the right used car loan EMI
Your EMI calculation shapes your experience throughout the loan tenure. Making the right decision supports these aspects:
- Balances monthly finances
Any recurring expense you introduce to your monthly budget can disrupt your finances, unless handled carefully. The same goes for the used car loan repayment. When you choose the right EMI amount, you balance your existing finances.
- Prevents financial stress
The flexibility of choosing the EMI allows you to align in with your monthly budget. So, you can increase or decrease it as your finances allow. When you accommodate it practically, management becomes easy, and the used four-wheeler loan doesn’t feel like a burden.
- Helps you plan for other ownership costs
Your car ownership, especially a used one, doesn’t end with the purchase. You incur maintenance costs like fuel, servicing, insurance, repairs, and upgrades. With a well-planned EMI, you can leave a buffer for such costs.
- Helps you borrow practically
All loan variables are interconnected, which you realise as you plan your EMI with IDFC FIRST Bank’s used loan calculator. For example, borrowing more results in a higher cost. Stretching the tenure leads to higher interest.
- Keeps your credit score healthy
Getting the EMI amount right means easy loan management. This can contribute to a healthy credit score. As you clear your dues on time, you build a positive credit history that helps secure good prospective credit offers.
Tips for choosing the right EMI for a used car loan
Small steps can make a huge difference in reaching a practical EMI estimate. Here are some ways to get it right:
- Understand your monthly budget
Take stock of your existing budget. What are the expenses that take up the largest portion of your income, and what can you let go of? Once you understand this, you can check what EMI amount you can comfortably accommodate for repayment.
- Consider the overall loan cost
When choosing an EMI, it’s natural to sway with the lowest figure. Stretching the tenure seems appealing. But what this does is inflate the interest cost. You can view this with a used car loan calculator. Understanding this impact is important to make the loan affordable.
- Balance the loan term
Extending the tenure excessively and shortening it to the point that it becomes financially stressful are both harmful. You want to find a workable balance that appeals to your budget but also accounts for the loan cost.
- Account for income changes
Your current budget is likely to change as your income changes. You may switch your job, or get a salary hike, or consider income alternatives. Your pre-owned car loan EMI should keep up with the opportunities or adjustments that such fluctuations present.
- Factor in unexpected costs
Not everything goes according to plan. Often, if unprepared, sudden expenses like medical emergencies, repairs, etc., can impact your finances greatly. Creating a buffer for them in the form of an emergency fund helps you avoid disrupting your monthly budget.
- Review prepayment flexibility
Most lenders like IDFC FIRST Bank let you prepay the used car loan at a nominal fee of 5% of the principal outstanding amount. You can use this flexibility for when you have variable income, such as a bonus, rent, dividends, pensions, etc. This lowers your loan amount, thereby lowering the interest cost and EMI.
Final words
Most applicants mistake the right EMI as the lowest possible one. In reality, what you consider comfortable today can result in higher loan costs in the long run. So, when deciding on the tenure and EMI on a used car loan, evaluate your budget, loan structure, future expenses, etc., to make a calculated decision. Take your time with the planning to avoid minor mistakes that cost later.
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