Owning a car of one’s own is much easier with a car loan. With the facility of car loans, you can buy your dream car whenever you want to and if the EMI is in your budget, it is even better. Now, how to reduce loan EMI? It is possible to reduce the EMI on your car loan before applying for it or even during the loan. But many of us often jump into the decision before doing proper research and end up having a loan that is taking a major chunk out of the monthly income. So, to avoid such situations and keep your other financial liabilities unaffected, try to go for the low EMI option. Here are the ways how you can reduce EMI on a car loan without any hassle.
How to lower EMI on a car loan
Below are the steps that you can follow to lower EMI on a car loan.
- Negotiate on the car price first
- Look out for NBFCs from car manufacturing companies
- Negotiate with the lender
- Make big down payment to cut EMIs
- Extend the tenure
- Prepay your loan
- Look for a lender with less or no processing fee
Negotiate on the car price
The first and foremost thing you should do is to try to cut on the cost of the car. It is always good to look for better options so you can try different lenders before you finalize. If tried, you can even get accessories for free as well like the free leather seat covers or rust painting, engine lamination. It does not cost the dealers much even the ones into car servicing business to provide these add-ons. You also have to avoid purchasing any car insurance from the leader as you can get them at a much lower price online.
Look for NBFCs from car manufacturing companies
The NBFC from a car or automobile manufacturing company is most likely to provide really good loan deals that can help you save money. However, it will be good if you let them offer you the offers first and then you tell them that you want to take a loan for the car.
Negotiate with the lender
Negotiate with the NBFC or the bank to get a car loan at a lower interest rate as it will reduce the burden of cash outflow. You can go through a list of banks with their interest rates in the table below to decide on the lender for a car loan.
Make big down payment to cut EMIs
Make a large amount of down payment to reduce the burden of EMIs. If possible, pay half the cost of the car in down payment as it will shorten the period of EMIs.
Extend the tenure on Car Loan to lower EMI
| Loan Amount (in ₹) | Interest Rate (p.a) | Loan Tenure (in years) | EMI (in ₹) | Total Interest (in ₹) | Total Amount (in ₹) |
|---|---|---|---|---|---|
| 5,00,000 | 9.20% | 1 | 43,772 | 25,265 | 5,25,265 |
| 5,00,000 | 9.20% | 2 | 22,888 | 49,319 | 5,49,319 |
| 5,00,000 | 9.20% | 3 | 15,946 | 74,072 | 5,74,072 |
| 5,00,000 | 9.20% | 4 | 12,490 | 99,523 | 99,523 |
| 5,00,000 | 9.20% | 5 | 10,428 | 1,25,667 | 1,25,667 |
| 5,00,000 | 9.20% | 6 | 9,062 | 1,52,499 | 6,52,499 |
| 5,00,000 | 9.20% | 7 | 8,095 | 1,80,012 | 6,80,012 |
As you can clearly notice in the table above that the EMI can be adjusted with the tenure. But the interest outgo increases as the tenure of the loan are higher. So you can avoid paying more interest if you take car loan for a longer tenure and pay low EMI and more interest or for a shorter period and pay more EMI and less interest, the choice is in your hands. The above calculation is done with the help of the car loan EMI Calculator.
Prepay your loan
It could happen your salary gets hiked in the event of you getting promoted. So you can use the hike to your advantage by prepaying all or a certain portion of the loan as it will bring down the principal amount and the tenure as well. This will eventually reduce your interest liability.
Look for a lender with less or no processing fee
While approaching the lender for a car loan, it is imperative that you inquire about the processing fee. It may not impact your EMI but will reduce the cost of your ownership.
Top Banks providing Car Loans with low EMI
Below are the details of top banks with low EMI option, car loan interest rate, tenure, processing fee and prepayment charges:
| Bank Name | Interest Rate (p.a.) | Tenure | EMI per lakh (in ₹ ) | Processing Fees | Prepayment Charges |
|---|---|---|---|---|---|
| ICICI Bank | 7.90% Onwards | Up to 7 years | 1,699-1,806 for new car 2,405 for old car | ₹2,500-5,000 plus GST | 5% of principal outstanding on a given date. No foreclosure allowed before 6 months from the date of loan disbursement. |
| HDFC Bank | 7.95% - 8.30% | Up to 7 years | 1,739-1,860 for new car 2,353-2,512 for old car | 0.4% of Loan Amount or ₹10000, whichever is lower plus GST | 3%-6% of the principal outstanding on a given date. No foreclosure allowed before 6 months from the date of loan disbursement. |
| Axis Bank | 7.45% - 14.50% | Up to 7 years | 1,712-1,765 for new car 2,353-2,445 for old car | ₹3,500-5,500 | 5%-10% of the principal outstanding after 180 days from the date of disbursement. No foreclosure allowed before 6 months from the date of loan disbursement. |
| State Bank of India | 7.20% - 7.90% | Up to 7 years | 1,619-1,622 for new car 2,257 for old car | NIL for new car 0.50% of the loan amount plus GST for old car Minimum- ₹450 + GST Maximum-₹9,100 + GST | NIL |
