Owning a car has a lot of advantages, such as convenience, saving time, freedom, saving money while taking enjoyable road trips, and cutting costs of transportation for your family. But, a car can be an expensive item, and most people opt for loans to buy the same. Car Loans are particularly designed to cater to your financial needs. While there are many car loans available, deciding which type of car loan – Shorter or longer tenure will require a careful analysis of the pros and cons of both. Long-term car loans have lower EMIS while taking a car loan with a shorter duration makes you debt-free faster. Let us read on to find out in detail about the benefits and drawbacks of both to arrive at a conclusion.
Pros and Cons of a Shorter Tenure Car Loan
Pros:
Total Interest Accrued is Less: Lenders charge higher interest rates if the loan tenure is longer. Also, the interest cost will increase with each passing year. Thus, if the loan is long-term, you will be shelling out much higher total interest. On the other hand, if you select a short-term car loan, you will end up paying your debt much quicker and also pay much lower total interest. Take an example: Say you are taking a car loan of 10 lakhs with an interest rate of 8 % for a period of 5 years. Then the total interest payable will be 2,16,584 and the EMI will be Rs. 20, 276. If the loan tenure is longer, say 8 years, then the total interest payable will be 3,57,121. Thus, when the time period is 5 years, you will pay a total amount of Rs.12,16,584 and if the time period is longer – 8 years, then you will pay Rs. 13,57,121 which is almost 1.5 lakhs higher. Also, whether you go in for a shorter or longer tenure car loan, you may have to pay additional charges, such as prepayment costs, processing fees, and other associated costs.
Helps You Get a Higher Resale Value for the Car: Cars are depreciating assets. Hence if you choose a longer time period, you will shell out more money for the car than it is actually worth at the time. Short term loans prevent this situation and ensure that your car has a higher resale value as well.
Selling the Car is Feasible: The average usage period for a car is 5 years after which you will want to sell it to a second-hand user. If the loan tenure is longer, then you will have to continue repaying the loan even after selling the car. Also, the process of selling the car during the loan period involves a set of additional steps, which makes the process complex. For this reason, a smaller loan time period is convenient.
Maintenance Charges are not a Burden: Car manufacturers usually do not give a warranty of more than 3 to 5 years. You will incur heavy maintenance charges after this period, which will add to the EMI and interest costs. If you have completed your loan before the warranty period, the maintenance expenses will not be a bother to you.
Moving the Car Between States is Easy: When you have a car loan on your head, interstate transfer becomes complicated. You will have to obtain a no-objection certificate from the lending institution and also from the current RTO. Then, you will have to apply for a re-registration in the state to which you are shifting. On the other hand, if you have already cleared your car loan, you will be ready for the relocation.
You Will Choose a Car That Fits in Your Budget: You may have the tendency to exceed your budget and go for a costlier car if you opt for a longer time period. If you have the capacity to pay a much higher EMI, then you should go in for a shorter time period rather than an expensive car.
Cons
The extra payment made will not be available for emergencies and sometimes you will be tight on funds. This will put you under immense stress.
Pros and Cons of a Longer Tenure Car Loan
Pros
You will have more time to pay off the loan, and there will be less financial thrust on you every month. You can use up this money for other expenses. If you wish to, you can also invest in a high-cost car.
Cons
- Accrual of Higher InterestÂ
- Depreciation and lower resale value
Final Words:
Financial experts would advise you to go in for shorter-term car loans but you should choose whether shorter or longer tenure car loan according to your situation. Only you can choose the best for yourself.
