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How is your EMI calculated?!
At a constant interest rate, EMI is constant month on month. The change happens in the way the principal and interest is added every month! In the initial years of loan repayment principal is lesser than the interest component of the EMI. In the latter years the reverse is true!
Repayment options in car loans!
Car loans in India have undergone widespread in the past few years with the financiers evolving new and innovative loan products in an attempt to attract more customers. There are various kinds of customized car loans available in the market which will suit differing requirements of the borrowers. In addition to the different car loans that one can avail there are also several options in manner and mode repayment of the loans to suit the financial conditions of different buyers.
These various structures available have to understood and worked with the financier at the time signing the loan agreement in order to have convenience in repayment. Discussed below are some of the more popular repayment options that are in vogue for car loans in India.
Regular EMI: This is the standard practice adopted for majority of car loans in India wherein a fixed rate of interest is calculates and EMIs decided for the entire repayment tenure. The interest rates in such options are the lowest. The Emi can either be paid in the beginning of the month called monthly in advance or at the end of month called monthly in arrears.
Step up EMI: In this arrangement the amount of EMI increases as the repayment progresses being lowest in the first year and increasing steadily thereafter. The interest applicable in such options is higher than those of the regular EMIs. Customers opt fir this option to have a lesser burden initially and then cater for higher Emi as their income increases.
Step down EMI: In this arrangement the EMI is highest in the first and then reduces to become the lowest in the final year of repayment. Though the rate in step down EMI is higher than regular EMI mode the total cost maybe lesser as the principal amount reduces faster through bigger EMIs.
Balloon EMI: In such a method there is provision of paying a lump sum amount up to 20% of the principal at the end of the repayment tenure. Though the rate of interest chargeable in this method is higher than regular EMI it reduces the initial burden on the borrower.
Special Tie Up: often referred to as the super saver tie ups these methods ensure maximum benefits for the borrower as the financier has a tie up the bank of the borrower so that whenever there is additional or excess money left with the borrower in his savings account the same is used up for out of turn payment of the car loan. This helps reduce the principal earlier resulting in substantial savings in the overall money paid out in the long run.
Lease and Refinancing: This is a rarely used option where the borrower pays the financier an EMI equivalent to lease charges of the vehicle and at the end of the repayment tenure has the option of paying the current value of the car and buying it or selling it off and settling any outstanding dues of the financier.
Each customer has his own special financial considerations which shall dictate the kind of repayment option that shall suit him best. However having an understanding of the various options available in the market makes it easier to take a more informed decision.