Is this the right time to purchase a car loan?
Car Loan

Is this the right time to purchase a car loan?

Is this the right time to purchase a car loan?

A Times of India report of January 2, 2022, reports that the passenger vehicle industry saw a growth of 27% in the year 2021 to cross the upper limit of 30 lakh units. A story by ‘mint’ reports that 80% of all the vehicles produced are financed in India. In addition to that, an exclusive Zee news story points out that there is a growing appetite to purchase pre-used vehicles recently. Hence, in conclusion, it is safe to say the market for cars is expanding and a majority of the produced cars are being financed.

The car loan is financial assistance provided by any third party so that a consumer doesn’t have to pay the whole amount upfront and it is distributed over some time with recurring interest.

Ideally, one is discouraged from taking a car loan, mainly because a car has a depreciating value. That is, its resale price is expected to come down. Further, EMIs extract out a considerable amount from a borrower over months. If the duration for the EMI is longer, the borrower ends up paying even more.

Having said that, the facility of loaning has some benefits as well. The primary benefit is that the borrower doesn’t have to pay the whole amount at once. This gives the borrower the time. So, when is the right time for a borrower to buy a car loan?

The ideal time to purchase a car loan is when the borrower doesn’t have any future monetary commitment insight. Along with the same, the borrower should have enough savings to pay for as a down payment. A large saving would also facilitate opting for a shorter loan repayment duration.

Two mistakes you must not make while purchasing a car loan are;

  1. Don’t overestimate your EMI affordability

The future is full of uncertainties and one should be prepared for it. Hence, while estimating for EMIs one should keep this point in mind. Ideally, your EMI should not consume all of your in-hand income excluding monthly needs. Further, a borrower should research well about the loan interest and offers provided by companies.

     2. Don’t fall for a longer period on EMIs

Longer period EMI comes with fewer monthly instalments but they happen to extract a greater sum from the borrower. Hence the borrower should attempt to pay the maximum amount forehand in the form of ‘down payment’ so that there is comparatively fewer EMIs to pay later.

In the wake of this, it is important to familiarise oneself with five important terms one must know before purchasing a car loan

1. On the road price - A on the road price is price Ex-showroom price including the additional cost like RTO+Road Tax and Insurance Payment. In other words, on the road price is the price paid to bring the vehicle on the road.

2. Credit Score – A credit score portrays the probability that the borrower would pay his debt in time. Among many other factors, the credit score is calculated based on the borrower’s Credit report, payment history, amount of debt the borrower has and length of credit history. A higher credit score usually depicts a higher probability and likewise.

3. Processing fees – It is a one-time fee to be paid by the borrower. The processing fee is not included in the loan and is expected to be paid separately.

4. Interest Rate – An interest rate can be simply defined as the percentage at which an extra amount would be extracted on the principle amount.

5. Loan tenure – The loan tenure is the time duration upon which the loan amount would be paid.


On a concluding note, It is advised not to apply for car loans to multiple loan providers as it brings negative feedback, and might trouble the borrower when borrowing next time.


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