A majority of Indians rely on bank loans to buy a car. Barring a home loan, repayment of a car loan is considered as one of the largest financial responsibilities that the average Indian commits to. If you are one of them, it takes around five to seven years to pay off the entire amount. To help you in this context below are 5 ways you can manage your car loan debt easily:-
- Pay more than the minimum: As the general rule goes, the longer you take to repay the loan amount the more interest the bank will charge and you’ll end up shelling out more money from your pocket. To put an end to this practice, it is wise to pay at least 2-3% more than the outstanding balance. Let’s suppose if your monthly loan EMI is Rs. 10, 000/-, try to pay the double of it or more. Streamline your normal expenses. It will be easy by making a few sacrifices like if you give up your happy hour drinks, rely on home cooked food and eliminate desserts.
- Make one large extra payment per year: Make a habit of making one large payment each year. Though it seems tough to make a single lump sum payment at one go, but once you make it a routine, you will be more than happy to pay off your car loan easily by saving your interest rate significantly. But before making one large extra payment, make sure to discuss this with the bank as there are some banks which do not provide this facility to the customers and might penalise you for such extra payments or paying off the loan balance early.
- Never skip payments: Some banks may allow you to skip your payment at leave once or even twice a year. But it is advised not to get tempted with this facility as it may give you leniency for the initial month but in return, it will lengthen your loan term and cost you more in terms of total interest payouts.
- Refinance your loan: You can even take new credit to pay off the original loan. Refinancing is done to provide lender the facility to obtain a better loan term and lower car loan interest rate. This way you can take a new loan, negotiate a new monthly payment and a new pay-off date for your new loan. Do this only if the bank provides a lower monthly payment and sooner pay off date for your new loan. Otherwise refinancing your loan will be of no benefit as you will end up paying the same principal and at increased interest rates.
- Find extra money: If all the aforementioned plans fail to work, you can cash out your savings and investments and use the money to pay off your car loan faster. Though this may sound a strange idea at once but is considered a shrewd way to pay off car loan debts without spending much and saving big on the interest payouts instead.
The bottom line is that managing your car loan astutely by paying off the debt early will save you money that is otherwise spent on paying the interest amount especially if your car loan interest rate is floating instead of fixed. Also, it will decrease the overall term of the loan significantly. Just imagine what you can do with your extra money: save for retirement, renovate your home, and much more to ensure a happy life in future without worrying about the loan debts and burden of EMIs that keep dragging on for years.