Car loans in India have become highly admirable in the last few years due to its wide variety and accessibility. The financiers are creating more innovative loan schemes each year in an attempt to lure more and more customers and creating more affordable methods of refunding your car loan. There are several kinds of modified or one can say customized car loans present in the market, strictly designed to suit the special needs of the borrower.
Nowadays, there are numerous alternatives available for refunding your car loan. A number of people are unaware of these alternatives.
An applicant must be aware of various methods available to them at the time of the car loan approval. There are six methods for refunding your car loan. One can choose the suitable option according to his/her suitability and affordability.
Different Ways Of Refunding Your Car Loan:
- Balloon EMI: In this method, an individual can pay a lump-sum amount up to 20% of the sanctioned loan amount at the end of the repayment tenure. Though the car loan interest rate charged in this method is higher than in regular EMIs, it reduces the initial burden on the customer.
- Regular EMI: In India, this is the most popular method of loan repayment. In this method, a static rate of interest is decided, based on which equated monthly instalments (EMIs) are computed for an entire loan tenure. Interest rates are the lowest in the regular EMI option. EMI can either be paid at the end of the month, called ‘monthly in arrears’ or at the beginning of each month, called ‘monthly in advance’.
- Step-up EMI: As its name suggests, the amount of the instalments increases with the incremental loan tenure from being the lowest in the first year of the loan tenure and increases gradually after that. The interest rate applicable in this alternative is higher than the regular EMIs. Customers prefer this option to have a lesser amount to pay initially and gradually increase as time passes by.
- Step-down EMI: Almost similar to step-up EMI but follows the opposite trend. In this case, the EMI reduces gradually from being maximum at first. Though the interest rate with step down EMIs is higher than that in the normal EMI method, the overall cost of the loan may be lesser as the acquired amount from the bank is paid back earlier.
- Lease and refinancing: It is not a popular option as the borrower pays the lender an EMI corresponding to rent charges of the car and then at the end of the loan tenure gets an option to pay the current price of the car.
- Special tie-up: It is often called as a ‘super saver tie-up’ option, it makes sure the maximum profit for the patron as the financier here has a tie-up with the bank of the borrower. The deal is made such that whenever there is additional money in the account, the same is used for refunding the car loan. It helps to reduce the acquired loan amount in advance, resulting in considerable savings in the total amount paid out in the long-run.
Each patron has a different set of economic considerations based on which he can stumble on the most suitable alternative not only for his car loan but also for a home loan. However, having a detailed understanding of a variety of options existing in the market makes it easier to take a more favourable decision.
