Buying a car is a significant financial decision, one that can even cost you your entire savings. So, whether you purchase a brand-new vehicle or a pre-owned car, getting a car loan is a convenient option to pay for the car comfortably.
However, while selecting a car loan, it is essential to factor in the car loan tenure to plan your finances. The duration of a car loan affects the EMI and the interest you repay, ultimately impacting your finances. This guide will help you understand the ideal car loan tenure for your needs.
What is the Car Loan Tenure?
Car loan tenure is the duration for which you agree to repay your car loan. The loan is typically repaid as fixed monthly instalments, known as EMIs. Most lenders in India offer flexible repayment tenures on a car loan, normally ranging from 12 to 84 months, which is the maximum tenure for a car loan.
Why is a Car Loan Tenure Important?
The loan tenure is an important factor when applying for a car loan, as it directly affects the amount you need to pay as EMI. The fixed instalments include the principal repayment and a portion of interest.
Understanding the implications of your chosen tenure is significant in your financial journey, as it affects how smooth or demanding your repayment journey will prove.
While a shorter loan tenure may lead to higher monthly instalments, it also significantly reduces the total interest payout. On the other hand, a longer tenure may increase your overall borrowing cost due to the high interest component, but keeps the EMIs low.
Therefore, before deciding on a tenure, it is important to assess your current financial situation and ability to repay the debt. Thorough planning before selecting a car loan duration will ensure that you budget for the EMI expenses in your monthly finances.
What are the Different Car Loan Tenures Available?
Car loans can be traditionally availed from 1 year to 7 years. The loan tenure depends on the lending institutions’ internal policies and the applicant’s financial profile. Some financial institutions also offer customisable repayment terms based on the applicant’s eligibility factors.
Short-term vs Long-term Loan Tenure Explained
When selecting the ideal car loan tenure, most borrowers struggle between 2 choices: short-term and long-term borrowing. While both have pros and cons, the choice of car loan duration depends on the borrower’s repayment ability, financial requirements, and the lending institution’s policies.
Short-term tenure (1-3 years)
A short-term tenure typically ranges between 12 months and 36 months. Choosing a short-term tenure leads to higher monthly instalments. But, this also means that the interest payout will be low, and you will be able to repay the loan faster.
Pros
- Less interest paid overall – While a short tenure translates into higher EMIs, it can reduce your interest portion of the instalment, helping you save in the long run.
- Faster ownership – A shorter repayment tenure ensures you can claim full car ownership sooner.
- Higher resale value – Since you can enjoy full ownership of the car within a period of 3 years, you might get a better resale value for it.
- Positive impact on credit score – Timely loan repayments in a short duration will positively impact your credit score.
Cons
- Higher EMIs – The monthly EMIs will be significantly higher than a long-term loan, which may put a strain on your monthly budget
- Less flexibility – You might be unable to save or invest elsewhere during the repayment tenure.
Long term (4-7 years)
A long-term loan tenure typically ranges from 4 to 7 years and leads to lower EMIs. However, it can also lead to higher interest payments.
Pros
- Lower EMIs – Since the loan repayment is spread over a longer term, the amount you pay as monthly instalments is significantly lower than that of short-term loans.
- Flexibility of budget – Since the car loan EMIs are lower in a long tenure, you may be able to save more and allocate the funds towards investments or other expenses.
Cons
- Higher interest component – Since the loan is repaid over a longer time, the interest component of the loan is typically higher than that of a short-term car loan.
- Negative equity – Cars depreciate quickly; therefore,if the loan repayment is made over a long time, the interest amount you repay might be more than the car’s value.
What is the Ideal Car Loan Tenure?
The ideal car loan tenure entirely depends on your financial stability, repayment capacity, and personal needs. Ideally, a tenure of 3 to 5 years is a good time to repay your car loan. This is because the EMIs during this period will keep your finances manageable and limit the interest payments.
Factors to Consider for your Car Loan Tenure
- Monthly Budget- Apart from factoring in the EMI, consider your monthly expenses while budgeting to choose a loan tenure that ensures smoother repayments.
- Financial Goals- If you have other financial goals, such as a housing loan or funding a child’s education, consider them when choosing the loan duration.
- Interest Rates- Your car loan interest rates may also vary depending on your chosen tenure. Some lenders offer attractive interest rates for short-term durations as the loan is repaid faster.
- Depreciation- A car is a depreciating asset, and therefore, you can consider choosing a tenure that will fetch you a reasonable market value when you wish to sell the vehicle.
- Payment options- In case of a long-term car loan, you can also choose to foreclose the loan early if your finances allow you to do so. However, understand any additional charges or penalties associated with it to ensure it doesn’t affect your budgeting.
Conclusion
Choosing the right car loan tenure is critical to managing your current and long-term finances. You can choose from a short loan duration of 12 months to 36 months or a long duration with a maximum tenure of 7 years.
Once you have a complete understanding of how a car loan tenure works and have weighed the pros and cons of each, apply for a car loan with Tata Capital.
Featuring flexible repayment tenure, convenient EMI payment options, and competitive interest rates, Tata Capital vehicle loans will help you finance your purchase with ease.
Visit the website or download the app today to know more!
FAQs
While you cannot change your car loan tenure once the loan repayment starts, you can consider loan refinancing, which involves replacing your existing loan with a new one to get better loan terms. By refinancing your loan with a new lender, you can change the loan tenure depending on your needs.
Many lenders offer a moratorium period, allowing you to pause EMI payments temporarily for a certain period without penalties. You must contact your lender to understand their policies and know about any conditions associated with the moratorium period.
Most lenders offer a maximum tenure for a car loan of 7 years.
Yes, you can clear a car loan before the tenure, following the lender's policies and understanding foreclosure charges.
14 May 2025
6 mins read
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