Just like buying a house, purchasing a car is also one of the bigger financial decisions a person takes in their life. It’s not cheap to invest in a vehicle and more often than not, people take a bank loan for car to make the purchase.
Getting a loan is dependent upon a lot of things including the CIBIL score of a person, their monthly income, their past financial records, etc. The interest rate for car loan also varies from bank to bank. Over the years, many banks have started offering customized car loan rates depending upon your financial situation.
Nowadays, for a vehicle loan, the maximum tenure for the loan required can range from anywhere between 3-7 years. Private banks like Axis and public ones like SBI offer loans for a longer tenure. However, if you take one with a longer duration, the interest rate for car loan will be higher. Going by the buzz in the market, a longer bank loan for car is not as lucrative as a person believes. Despite a higher rate of interest, here’s why taking a vehicle loan for a longer duration might not be a great idea.
More interest rate for car loan Since the tenure of your car loan is higher, the rate of interest that you pay on the vehicle loan also goes up. Therefore, while you have more time to pay the loan, the interest rate is also higher
Greater financial burden Sometimes, people might be helpless when it comes to the tenure of the bank loan for car, it is greatly recommended that an individual opts for a shorter-duration loan. Why, you ask? This is because paying off the debt for a longer time means a greater financial burden on an individual.
Selling hassles Taking a longer tenure loan ties you to your car for a longer period of time. On average, a person in India takes a loan for 5 years. If you are tied to a vehicle loan, it will be a bigger hassle to sell your car or to change it for a new one, until your loan has been paid off.
There are seldom any upsides to taking a longer tenure loan. Except for the ease of making the payment in your own time, you definitely pay a lot more interest rate and might have to stay with the same vehicle for a long time, even if you want to change it. However, with a shorter duration vehicle loan, you don’t pay an exorbitant interest and your vehicle will probably have a higher resale value compared to when it is purchased on car loan rates negotiated for the longer term. You can opt for the loan tenure of your choice depending upon the loan required by you.