Tips To Reduce Your Auto Loan EMI

The easiest way to reduce your auto loan EMI is to pay more than the monthly installment. If you can afford to do this, you can reduce your monthly payment by a significant amount and achieve financial freedom much faster in life.

However, not everyone has the luxury of being able to pay more than their EMI every month. If this is the case with you, here are other tips to help lower your auto loan EMI.

Pay more than the EMI.

Another way to reduce your auto loan EMI is by paying more than the monthly installment. Doing so will pay off your loan faster and reduce the interest burden on the remaining tenure. You can do this in two ways:

  • Paying an extra amount towards principal payment every month.
  • Paying a lump sum at one go while availing a new loan or switching to another.

Choose a lower rate of interest from another lender or bank.

One way to reduce your EMIs is by choosing a lower interest rate from another lender or bank. This is one of the most effective ways of lowering your monthly payments, as it reduces both the principal and interest. This is a great place to start if you’re looking for ways to decrease your monthly EMI.

When choosing a lower interest rate on a car loan, make sure that you compare all the other details, such as processing fee, prepayment penalty and tenure (loan tenure), before closing the deal with any lender.

Pay down your loan in low-interest years.

Consider paying down your auto loan EMI in low-interest years if you have a huge cash surplus. If you don’t have large funds to save for the year, at least pay as much as you can.

Remember that if you are facing an EMI burden and cannot afford to repay the entire loan amount with one payment, it is better not to leave any amount unpaid and continue making monthly installments without fail.

Also, remember that if one contributes more than their regular monthly payments towards reducing their debt during low-interest periods, they need not worry about interest accruing on the extra payment made during those months. As the interest on past due amounts will also be waived under this scheme.

Pay an extra amount every year.

The earlier you can pay off your loan, the less interest you’ll pay. However, if you can afford to pay an extra monthly, do so. This will help reduce the term of your loan and ultimately save you money.

If paying more than the EMI is impossible, consider refinancing your auto loan. Refinancing involves taking a new loan at a lower interest rate or shorter tenure (duration) but maintaining the same repayment schedule as before. This can be done by calling banks and credit card companies directly or online through websites.

According to Lantern by SoFi advisors, “Your outstanding loan balance decreases with each payment, so this formula could be applied each month to determine how much of your payment went toward interest charges in that particular month.”

You can reduce your car loan EMI by making sure you take a loan that suits your financial needs. Hopefully, these tips in this article have helped you decide how to pay off your car loan faster and reduce your EMIs.

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