KEEP CAR LOAN TEN­URE AT THE MIN­I­MUM

In­creas­ing the loan ten­ure re­duces EMI bur­den but en­hances in­ter­est outgo

Business Standard - - PERSONAL FINANCE - SAN­JAY KU­MAR SINGH

■ Do not stretch your­self ex­ces­sively when tak­ing a car loan. This could ad­versely af­fect your abil­ity to meet your reg­u­lar ex­penses, sav­ings and in­vest­ments. Be more cau­tious, if you have other equated monthly in­stal­ments (EMIs)

■ Bor­row­ing ex­ces­sively could in­crease the chance of a de­fault, which would in turn hurt your credit score, and hence your abil­ity to bor­row in fu­ture

■ Make a con­sid­er­able down pay­ment and re­duce the loan amount

■ Sup­pose you take a loan of ~10 lakh at an in­ter­est rate of 8.9 per cent, and for a ten­ure of three years

■ In this case your EMI will be ~31,753, and the to­tal in­ter­est you pay will be ~1,43,116 ■ Now sup­pose that for the same loan amount and in­ter­est rate, you en­hance the ten­ure to five years. The EMI will fall to ~20,710. But, the in­ter­est over the loan ten­ure will rise to ~2,42,591 ■ Opt for as short a loan ten­ure as pos­si­ble

■ Thus, al­though the monthly bur­den falls when you in­crease the ten­ure, your in­ter­est outgo rises 1.7 times

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