You take a Car Loan to buy a car and regularly pay your EMIs. A few months later, you receive an unexpected windfall – proceeds from a sale of property or a bonus at work. You are wondering: Should I prepay my Car Loan? What are the advantages and disadvantages of prepaying? Here’s everything you want to know about Car Loan prepayment.
What is Car Loan prepayment?
A bank gives you a loan for a certain term (12 months, three years or seven years, whatever it may be). You repay it in easy monthly instalments till the term is over. When you opt to pay off the loan before the completion of your tenure, you are prepaying your loan.
What are the benefits of prepaying a Car Loan?
The biggest benefit of prepaying a Car Loan is that you clear off a debt and don’t have to make monthly payments. When you pay off a Car Loan, you release the hypothecation on the vehicle and have full ownership. Apart from this, lenders will also offer additional benefits. For example, HDFC Bank offers zero foreclosure charges to selected customers.*.
Each lender will have their own terms and conditions when it comes to their respective Car Loan prepayment offering. It is best to review the prepayment clause from your respective lender to see if it benefits you, before taking a decision.
If you have bought your car for business use, and are claiming tax deductions on interest payments, it is ideally recommended to see if you are eligible for the prepayment clause.
How does one prepay a Car Loan?
You can prepay your Car Loan either in part or in full. If you are prepaying in full, make sure you collect any post-dated cheques you may have issued and get proper closure of your loan.
When should you prepay your Car Loan?
If you have the funds to prepay and have no plans of using it for any other purpose, you can consider prepaying your Car Loan. But first, clear other debts that may have higher interest rates. Consider the impact of prepayment charges if any.
In case you are planning to sell your car, you may have to foreclose the loan to transfer ownership. Some banks allow you to transfer the loan along with the ownership, provided the new owner is credit-worthy.
Now that you aware of the process, are you ready to pre – pay your Car Loan?
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* Terms & conditions apply. Car Loan disbursal at sole discretion of HDFC Bank Ltd. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.