Ways to Cut the Cost of Your Car Loan

Owning a car means taking a loan. However, borrowing can cost more than you might expect. Things like interest rates, loan tenure and extra fees decide how much you’ll actually pay. Whether for personal use or business through a commercial car loan, there are various factors which affect your overall expenses. Knowing what to look for can help you save money and manage your loan better. This blog breaks down what impacts your car loan and how to keep it affordable. Let’s dive in.

Strengthen your credit profile

Credit score is one of the biggest factors that determines the interest rate of your car loan. A higher score showcases that you’re a reliable borrower. This can help you secure a lower rate. To improve your credit profile, you should focus on paying your existing EMIs and credit card bills on time. This will keep your credit utilisation low. Also, avoid multiple loan applications in a short span. Even a small increase in your credit score can translate into big savings over the life of your loan.

Increase the car down payment

The more you pay upfront, the less you need to borrow. This means lower interest payments and a smaller debt burden. A larger down payment also improves your chances of getting a lower interest rate, as lenders see you as a low-risk borrower. While many loans allow you to finance up to 90% of the car’s price, putting down at least 20-30% cuts down the total cost of your loan.

Opt for a car loan with a shorter tenure

A longer loan tenure might look good because of lower monthly EMIs, but it also means paying more interest in the long run. A shorter tenure, however, helps you pay off the loan faster and reduces the total interest cost. While this means slightly higher EMIs, it also leads to big savings over time. So, before choosing, make sure the EMI amount is affordable so that it doesn’t put too much pressure on your budget. For that, use a car loan EMI calculator.

Finalise the loan that allows prepayment without penalties

Some lenders charge a penalty if you want to repay the loan early. This can reduce your ability to save on interest. Choosing a loan that allows prepayment without extra charges can give you the flexibility to clear your loan ahead of schedule. Hence, check the prepayment terms before finalising your loan to have the option to pay off your debt sooner if needed.

Make larger payments whenever possible

Paying more than your regular EMI or making lump-sum prepayments can help reduce your principal faster. Thus, lowering the total interest paid. If your lender allows penalty-free prepayments, use bonuses or extra savings to clear your debt sooner. This shortens your loan tenure and decreases the overall cost of borrowing. Always review your lender’s prepayment terms to avoid unexpected charges.

Take out a loan from a bank you have an existing relationship with

Banks often offer better deals to their existing customers, especially those with a good financial history. If you already have a savings account, fixed deposit or an ongoing loan with a bank, they may be willing to provide you with a lower interest rate or reduce processing fees. Since they already know your financial behaviour, the loan process would be faster and smoother.

Negotiate car loan terms with the bank

Car loan terms are not always set in stone. If you have a good credit score or strong financial stability, there’s room for negotiation. Many banks are open to offering a lower interest rate or waiving processing fees. This is if you have pre-approved offers from other lenders. Comparing multiple loan options and negotiating smartly can help you secure a more affordable deal. It would save you money over time.

Final word

The type of car you choose also impacts your loan eligibility. Lenders consider the resale value of the car when assessing your application, as vehicles depreciate over time. A car with a higher resale value is often seen as a lower-risk asset, which could improve your chances of loan approval.

So, when purchasing a car, look beyond the price tag. A model with strong resale value not only makes loan approval easier but can also reduce financial strain if you ever decide to sell or upgrade. Keeping this in mind can help you get the best deal - not just on your car, but on your loan as well.

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