1. Advisorkhoj
  2. Post Your Queries
  3. General
  4. Should I prepay my existing Vehicle Loan

Should I prepay my existing Vehicle Loan

I have vehicle loan of 2.5 Lakh @ 10.2% and part payment/ preclosure charges is 5% and now I have around 50 thousand so should I pay my vehicle loan or go for FD?

Dec 30, 2015 by Anil, Bangalore  |   General

You have not provided sufficient information in your query. However, if you think about your financial decision in a very logical way, it should be fairly rational decision. You should consider two points, while making your decision:-

  1. Pre-closure / prepayment penalty: If your remaining balance is Rs 50,000 and your remaining loan term is one year, you will pay Rs 2,500 towards prepayment penalty (assuming pre-closure charges are 5%). However, if you do not pre-close your loan, continue to pay EMIs and do an FD with the funds at your disposal, you will pay an interest of Rs 4,500 - 5,000 in your EMI. On the other hand, assuming you get, 8% interest on your FD you will earn, Rs 3,600 as returns (10% TDS). Therefore, your net outflow, if you do not pre-close your loan and do an FD, will be Rs 900 – 1400, which is less than Rs 2,500 of pre-closure charges. Clearly it makes sense, to continue paying EMIs and not pre-close your loans in that case.

  2. Balance term of your auto loan: If the balance term of your auto loan is more than a year from now and if the interest payout on your EMIs is more than Rs 900 – 1400 in 2017, it makes more sense pre-close your loan right now, because you will be saving more in interest costs.

Please note that the above calculations are only approximate and do not take into account diminishing loan balance after payment of EMIs. You should factor in the actual interest payout, based on the principles discussed above, and make a rational decision.

comments powered by Disqus
You haven't found the answer for your queries? Do post your queries to us.

© 2016 Advisorkhoj - A Gamechanger Business Services (I) Pvt. Ltd. Brand - All Rights Reserved