Cars have become a necessity in today’s age for travelling or commuting conveniently.
Cars, of course, are expensive.
Here’s where a car loan comes in handy: a car loan helps finance your purchase. You can avail of a loan and repay it through Equated Monthly Installments (EMIs).
EMIs are monthly repayments done towards the car loan: each EMI contains the principal as well as the interest payable. You can use a car loan EMI calculator to work out the EMI before applying for the loan.
Here are some pros and cons of car loan EMIs for you to consider.
Advantages of car loan EMIs
- Repay the loan easily
The car loan amount might be considerable. EMI allows you to pay off the loan conveniently in small amounts over time, rather than as a single lump sum.
- Build the EMI into your monthly budget
Car loan EMIs are affordable. If you opt for a low amount of loan or choose a high repayment tenure, the EMI would be lower. You can, thus, affordably incorporate the EMI in your monthly budget without suffering a financial strain.
- Create room for major purchases
You can make big purchases when you can pay for them in small and affordable amounts later on. Therefore, a car loan EMI allows you to opt for a better, possibly costlier, car.
- Control the repayment tenure
When you opt for a car loan, you choose the repayment tenure and the loan amount. Moreover, you can use a readily available car loan calculator to settle on the right monthly payment. You control the amount of the EMI, which means you can decide on an amount convenient for you to repay each month.
- Repay via various easy channels
EMIs can be paid conveniently through multiple channels like debit or credit cards, internet banking, NEFT, RTGS, etc. You can also set up an auto-debit mandate on your bank account for paying the EMIs without default.
Disadvantages of car loan EMIs
- Extra interest cost
EMIs include the interest payable on the loan. This interest payment is an additional cost on your pockets.
- Financial liability
Until your loan is repaid, car loan EMIs remain a financial liability that might stress your monthly budget.
- Dire consequences of default
If you miss an EMI payment, you face two consequences. One, you incur additional interest costs as well as a default penalty. Two, your credit score suffers. These consequences, clearly, can harm your financial health.
- Challenging in a financial crunch
If you face a rough financial patch or are going through a cash crunch, paying car loan EMIs on time can prove challenging. Defaulting on payments can lead to negative consequences, but paying them could lead you into a debt trap.
- You run the risk of overspending
By allowing you to repay the loan in small amounts, car loan EMIs might encourage splurging or overshooting your budget. Later on, this overspending shows up as a financial mistake, which makes the EMIs a burden.
It’s true that car loan EMIs are an easy way to finance your car, but it’s a good idea to stay alert to their disadvantages. Use CRED’s car loan eligibility calculator to find out the car loan amount you’re eligible to avail. CRED also offers a car loan EMI calculator to help you find the best EMIs for the loan. Use the car loan calculator wisely to work out the most affordable EMI plan for you.