- Date : 30/12/2021
- Read: 3 mins
If you don’t want to continue your car loan till the end of the tenure, you can plan for its early repayment with these tips.
Car loans have revolutionised the concept of private vehicle ownership in India. Owning a car is not a big deal today for most urban Indians, given the ease with which they can avail of car loans from banks and financial institutions. Once you have availed of a loan and bought a car, paying off your car loan should be high on your list of financial priorities.
Paying EMIs every month along with your regular monthly expenses is convenient but involves a higher interest cost. If you can arrange the finances, you should focus on paying off your car loan early and save money on the interest.
Here’s how you can plan your car loan repayment journey:
1. Analyse your car loan details
The first step towards effective repayment of your car loan is to break down your loan details. Simple interest is likely to be charged on the outstanding loan balance. Find out how much of your outstanding amount is interest cost, so you can estimate your savings. You also need to find out what the prepayment penalties are if you wish to pay off the loan early.
2. Put up an additional principal amount
It may happen that you start earning additional income from bonuses, cash rewards, old asset sales, rental income, etc. You can use such additional funds to pay extra principal outstanding against your car loan. The reduction in the outstanding principal will consequently lower the interest that will be charged on future EMIs.
Also Read: Why Are Women Buying More Cars Today?
3. Cut down on secondary expenses
We all love to live a luxurious life - at least once in a while. But if your car loan burden is creating pressure on your monthly budget, try to reduce extra expenses to ease things a bit. While you don’t need to sacrifice every activity in your daily life, try to limit eating out, planning an expensive vacation, or shopping for unnecessary things. Keep track of your expenses, and you will notice how this can help you save money. You could use this technique to reduce the burden of your car loan.
4. Leverage your increments
If you are wondering how to pay off car loan faster, make good use of your salary hike. With each increment and bonus, your repayment capacity increases. Don't let your extra income fizzle away. Instead ask your lender if they are open to partial lumpsum payments, and ensure that they don't charge heavily on prepayment. It is an effective way of reducing your EMI amount or your tenure.
5. Clear some loans earlier than others
This tip is useful if you have multiple active loans. Start clearing off the smaller loans or the ones with the highest interest rates. When you are done with one, you can use your saved funds to repay the next. But remember to follow the pattern correctly and prioritise your repayment schedule based on the dearness of the loan.
If you were wondering how to pay off your car loan faster, these tips should help with your repayment plan.