The feeling of freedom as you drive your new car is amazing. However, as months pass, the burden of the Car Loan that you took may start to get in the way of your long-term goals. This is when you might consider early Car Loan repayment options. Is it a good idea? Find out the pros and cons of paying off your Car Loan early and make a wise decision.
Pros of paying your Car Loan early
- Interest savings: Early Car Loan repayment will help you save a substantial amount of money on interest payments. By shortening the loan term, you minimise the duration for interest to accumulate, resulting in lower overall payments.
- Improved credit score: Early repayment of your Car Loan positively impacts your credit score. Closing the loan account successfully demonstrates responsible financial behaviour, which will enhance your credit score.
- Debt-free: Paying off your Car Loan ahead of schedule provides a sense of financial freedom and peace of mind. Being debt-free sooner offers greater flexibility in managing your finances, enabling you to allocate those funds towards other investments.
Cons of paying your Car Loan early
- Prepayment penalties: Some lenders impose fees or penalties for early repayment of loans. These penalties can eat into the savings you hoped to achieve by paying off the loan early, reducing the overall benefit of early repayment.
- Low-interest loan consideration: If you have a low-interest Car Loan, it may not be financially advantageous to pay it off early. Instead, you could potentially earn higher returns by investing the extra funds in avenues offering better returns than the interest rate on your Car Loan.
Key considerations
- Used Car Loans: Pre-Owned Car Loans usually come with higher interest rates compared to New Car Loans. Paying off a Used Car Loan early can lead to significant savings on interest payments.
- New Car Loans: New Car Loans often feature lower interest rates and longer loan tenures. While early repayment of a New Car Loan can still save you money on interest, the potential savings may be less significant compared to Used Car Loans.
Also Read: How to pay your Car Loan early?
Conclusion
While early repayment offers benefits such as interest savings and improved credit, it also comes with potential drawbacks like prepayment penalties and lost investment opportunities. Choosing to prioritise early loan repayment depends on various factors, including your financial goals, loan terms and investment opportunities. Weigh the pros and cons of paying off a Car Loan early carefully to determine the best decision for your financial future.
For New Car Loans, Axis Bank offers amounts starting from ₹1 lakh, up to 100% on-road funding, and a maximum tenure of up to 7 years. For Used Car Loans, amounts start from ₹1 lakh, with up to 95% of the valuation amount for sale-purchase and a tenure of up to 5 years. Apply for a Car Loan with Axis Bank and drive your car with confidence!
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
