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POSTED BY ON July 31, 2013 11:08 am COMMENTS (4)
Dear Manish,
I have a case study on which I need your inputs.
I took a car loan from SBI for 4L and tenure is 7 yrs. Monthly EMI comes out to be Rs.6955 and Ive completed 2 yrs in May,13. I am 29 and my monthly income at the time of starting the loan was 45K.
After 2 yrs i feel these 7 yrs will take too long to complete and doubting myself if I should have taken a tenure of 3 or 5 yrs. Though, i have a prepayment facility but i want to understand what is better,
1. Paying 6955 x 84 months = apprx 6L, i.e. paying 50% extra on a loan on 4L.
2. Or taking a short tenure loan and save on the interest part.
How do we decide?
Also, what should be my current plan?
Regards,
Anurag.
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Thank u all for your valuable feedback.
@Credexpert – I have a prepayment facility available without any penalty if done after the first 3 yrs so i could wait a while and start pre-paying.
@Manish – Totally agree with you. Your views on this is exactly similar to what my father told me while taking the loan.
@Ashal – I will definitely do the comparison. This is will be a new exercise.
Dear Anurag, a simple calculation can solve your query. How much extra amount on mly basis you want to pay along with your EMI? Check the maturity value of a RD for the same amount in SBI for the remaining period. Now compare it with your saving in car loan. if RD is providing you more, opt for RD. If you are saving more in car loan, opt to prepay.
Thanks
Ashal
If you can prepay the loan , then keep prepaying once in a while , which will close your loan in few years itself and not strech for 7 long years . Also dont forget time value of money
Paying 6 lacs streched over 7 yrs , can be cheaper than paying 4 lacs in some cases 🙂
Manish
Dear Mr. Batra,
Reducing the loan tenure and saving the interest cost is always a good option to select, but this would increase your repayment amount (EMI) and could also be reported as a “Restructured” loan. Do confirm with the bank that there should not be any “Restructured” or any other negative remark reflecting on your credit report. Any such remarks will negatively impact your credit score and your future borrowings.
Yes, you could also prepay the loan and this option would attract a pre payment penalty but this would be much lower as compared to the interest cost you would end up paying in the original loan tenure of 7 years. Do ensure that you have certain funds saved as contingencies for future unseen activities as any future cash stretch resulting in late payments would also affect your credit score.
Regards,
Credexpert