3 MinsMar 7, 2023
Owning a car is a significant milestone in our lives. However, buying a car often requires availing of a car loan, which can be a long-term financial commitment. Paying off the car loan early can reduce the burden of monthly payments and provide a sense of financial freedom. It can also help save a significant amount of money that would otherwise go towards paying interest. In this blog, we will discuss some effective ways to pay off your car loan early, including making additional payments, prepayment, choosing a car that fits your budget, and keeping expenses under control.
Make Additional Payments
Making additional payments on your car loan can help you reduce the total interest you pay over the life of the loan and reduce the length of the loan term.
For example, let's say you have a car loan of ₹5 lakh at an interest rate of 9% for a term of 5 years. The monthly payment would be around ₹10,380, and the total interest paid over the term would be around ₹1.22 lakh. However, if you make an additional payment of ₹5,000 every year, the loan term will be reduced to 4 years and 7 months, and the total interest paid would be around ₹1.12 lakhs, resulting in a savings of ₹10,000.
Prepaying the car loan is another effective way to pay it off early. Prepaying means paying off the loan before the end of the term. Some lenders may charge a prepayment penalty, so it's important to check with your lender before making any prepayments.
For example, let's say you have a car loan of ₹7 lakh at an interest rate of 9% for a term of 5 years. If you prepay ₹1 lakh in the third year of the loan, the loan term will be reduced to 4 years and 2 months, and the total interest paid would be around ₹1.55 lakh, resulting in a savings of around ₹16,000.
Also Read: [How can you reduce your car loan EMI?]
Choose a car according to your budget
Choosing a car that fits your budget can help you pay off your car loan comfortably.
For example, if your monthly income is ₹50,000, your monthly car loan payment should not exceed 15% of your income, which is ₹7,500. If you take a car loan of ₹5 lakhs at an interest rate of 9% for a term of 5 years, the monthly payment would be around ₹10,380, which exceeds the 15% threshold. In this case, you should consider a smaller loan amount or a longer loan term to make the monthly payments more affordable.
Keep a lid on expenses
Reducing your monthly expenses can free up extra money to pay off your car loan faster.
For example, if you reduce your monthly expenses by ₹5,000, you can put that money towards your car loan. If you have a car loan of ₹7 lakh at an interest rate of 9% for a term of 5 years, the monthly payment would be around ₹14,550. By putting the extra ₹5,000 towards your car loan, you can reduce the loan term to 4 years and 6 months and save around ₹12,000 in interest.
Paying off a car loan early requires discipline and a financial planning. Making additional payments, prepaying the loan, choosing a car that fits your budget, and keeping expenses under control can help you pay off your car loan faster.
You can find out more about how to use our car loan EMI calculator and learn more about the interest rates on car loan offered.
With Axis Bank's car loans, you can enjoy flexible repayment options, competitive interest rates and minimal documentation. So, if you're looking for a car loan that fits your financial needs, consider Axis Bank's car loan.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.