Selecting the most suitable loan tenure is one of the important tasks while applying for a car loan. Whether you should go for a longer tenure or shorter one based on your repayment ability and your present finances. If you go for the longer tenure, you would be able to keep your EMIs low. On the other hand, if you choose a shorter term, you will have to pay a larger EMIs. So, if you want to arrive at an ideal tenure for your car loan, firstly evaluate how much you can afford to pay every month in the form of EMIs without affecting your financial health. To do so, you will be required to do the following things:
Step 1: What is your monthly surplus?
To find out the monthly surplus, deduct your net income from expenses. Also, reduce other outgoings i.e. SIPs, mutual funds, insurance premiums, EMIs on other loans, etc. After doing the whole maths, you will get to know how much you will be left with after meeting all your monthly expenses.
Step 2: What are your future cash flows?
If you are expecting a hike in your salary soon, you may be able to afford to pay a larger EMI or if you are planning to make a big expense, in that case, you may want to save for that and lower your EMIs.
Step 3: Do you have any plans to prepay your loan?
One option is to choose the maximum tenure initially and reduce the tenure by prepaying part of the loan. Make sure you do not forget to check out the prepayment charges with your bank before opting for prepayment. As most of the banks also offer car loans with zero foreclosure charges.
So, while opting for car loans, one should always be very careful in choosing its tenure. However, if you want to choose the best tenure for your car loan, you can make use of an online financial tool i.e. Car Loan EMI Calculator. It will help you with easy loan planning.