The three quintessential needs of ‘roti, kapda, aur makaan’ now includes a fourth wheel – gaadi! As the Indian economy continues to be robust in the face of a slowing global economy, the automobile industry is going strong and a lot of consumers are purchasing a car quite early in their career. While there’s nothing wrong with driving home a beauty, reckless purchases now might take a toll on your economic health later.
- For instance, you might think that buying a fancy car right away is no big deal, but keeping inflation in mind, it might prove to be more expensive than you had bargained for. Also, if you want to purchase a home in the recent future and want to avail of a Home Loan, your eligibility will decrease if you’re already paying a high EMI on your Car Loan.
- The Budget 2016 hasn’t been particularly kind to the car buyers in the country with the prices of cars slated to go up in the next financial year. So, if you’re thinking of driving off to the sunset in your new ride, now is the time.
- A car is a depreciating asset, which basically means that the value of your car is going to go down with time. So, if you think about it, spending a huge chunk of your income every month on your car isn’t really be a smart move.
- Then there’s the Car Loan. Usually, banks will lend you up to 85% of the car value. However, like all loans, your lending bank will first check a few things before sanctioning your loan. One of the most important factors they will consider is your repayment capacity which depends on your monthly income, employment details, etc. So, if you want to buy a bigger, better car, the bank first needs to be convinced that you can afford it and will repay the entire loan amount within the tenure.
- Buying a car is only the first step, you will also have to maintain the car over the years. A bigger car would, of course, mean higher maintenance and fuel costs, not to mention greater insurance costs as well.
- So how much Car Loan should you take? With the market flooded with options in all the auto segments, you’re spoilt for choice. You also might be pretty confused about which car or cars to narrow down your selection to. It’s easy to give in to the temptation and get the swankiest wheels you can afford, but don’t. According to experts, you should not spend more than 20% of your monthly income on repaying your Car Loan. For example, if your monthly income is Rs. 20,000, your car EMI should ideally be around Rs, 4000. Choosing a smaller car would be a wise choice in the long run. Think about it. You can still go for a more expensive car one which would require an EMI payment of, say, Rs. 10,000 per month, which is half of your income but paying such a high EMI every month will hardly let you save, spinning your budget out of control.
A few things you should keep in mind while taking a Car Loan:
- Rate of Interest
Do your research thoroughly and find out about the rates of interests offered by several banks. Ideally, go for the bank offering the lowest interest rate.
- Processing Fee
The processing fee is a one-time payment only, but try to find a bank which charges the lowest fee.
- Prepayment Charges
A prepayment charge is the money that you have to pay to the bank if you want to complete paying the entire loan amount before the stipulated tenure is up. Depending on your lending bank, you might have to pay anything between 0 to 5% of the total loan amount as prepayment. If you’re confident about being able to prepay your Car Loan, go ahead and select the bank which levies the lowest prepayment charge. This will also reduce your overall interest rate.
Additional Reading: The Top 7 Banks For Car Loans
Buying a car is now easier than ever, but as with all your financial decisions, apply prudence over temptation and choose a car which will be good for your pocket as well as the long rides!