What is the ideal car loan tenure?

It’s always a tough call when it comes to your car loan. How do you decide the ideal car loan tenure? Is it good to go for the maximum tenure? Or should you opt for a bare minimum car loan tenure? This article will help you decide.

Why is the tenure of your car loan important?

The tenure is one of the most important factors that influences your EMI (Equated Monthly Instalment) -- the amount you pay every month to repay your loan. If you go for the maximum car loan tenure possible, you would be able to keep your EMI low. If you choose a shorter term, you will have to pay a larger EMI. 

You can use the HDFC Bank Car Loan EMI Calculator to see this in action.

  • On a Rs 1 lakh loan at 9% rate of interest for a 24-month tenure, you would pay an EMI of Rs 4568*.
  • Increase the tenure to 48 months, and your EMI comes down to Rs 2489*.

While a longer tenure helps you bring down the EMI, it increases the overall interest cost of your loan. So, to arrive at an ideal tenure for your car loan, you must figure out the EMI you can afford to pay every month.

Step 1What is your monthly surplus?
Your net income minus your expenses is the surplus cash you have. Reduce other outgoings – mutual fund SIPs, insurance premiums, EMIs on other loans etc.

Step 2What are your future cash flows?
If you are expecting a raise soon, you may be able to afford a larger EMI. Or you may be planning a big expense, in which case you may want to save for that, and lower your EMIs 

Step 3Do you plan to prepay?
One option is to choose the maximum tenure when you start and reduce the tenure by prepaying part of the loan. But check on prepayment charges with your bank. HDFC Bank offers car loans with zero foreclosure charges.

By now, you should have an approximate EMI in mind. Visit the HDFC Bank Car Loan EMI calculator and enter the loan amount and interest rate. Then tweak the tenure till you reach the EMI you have in mind. HDFC Bank offers flexible tenures and you can choose one up to seven years.

There you have it. Now go ahead and make your car dreams come true.

Looking to apply for a car loan? Click here.

* Terms & conditions apply. Loan disbursal at sole discretion of HDFC Bank Ltd.