Buying a Car on EMI? What the Dealer Might Not Tell You

Buying a car is a big decision, and for many, paying through EMIs (Equated Monthly Instalments) makes the dream of owning a vehicle feel more achievable. The idea of making small monthly payments rather than paying the entire sum upfront is tempting. However, before jumping into the excitement of driving a new car, it's essential to pause and consider a few aspects that dealers might not always tell you upfront.

This article will discuss some lesser-known facts about buying a car on EMI, ensuring that you make a well-informed decision.

A Quick Understanding of Buying a Car on EMI

Before examining detailed information, it is essential to understand the process behind buying a car through EMI schemes. Taking a loan from banks or financial institutions enables you to purchase a car through monthly payments that distribute the borrowed amount, including principal and interest costs. Dividing a car purchase amount allows you to pay it off gradually over several months.

The monthly EMI cost is more than the vehicle's retail price. The EMI payment consists of the loan principal and interest fees, combined with possible extra fees that emerge throughout the borrowing period.

The Hidden Truth About EMIs

The following are some of the key things you should know about EMIs:

1. It's Not Just About the Car's Price

The first thing you need to understand is that the EMI isn't just about the amount you pay for the car.  Dealers often highlight the car's price, making the EMI look affordable, but what they might not mention is that the interest can substantially increase the total amount you'll end up paying over time. Also, the interest rate on your loan may vary based on your credit score, the car's model, and the loan tenure.

2. Down Payment: The Game Changer

Dealers often suggest a minimum down payment, but it will significantly reduce your monthly EMI if you can afford a larger down payment. A larger down payment also means you're borrowing less money, reducing the interest you pay. This is a small yet powerful step in reducing the overall cost of your car loan.

When you opt for a higher down payment, your EMI becomes more manageable, which means fewer financial burdens in the long run. It's worth considering if you have the resources available.

3. The Fine Print and Hidden Charges

It's easy to get carried away with affordable monthly payments, but hidden charges can quickly add up. From processing fees and documentation charges to registration and insurance premiums, these additional costs can increase the price of your car.

Often, dealers may not disclose these additional expenses upfront, and you might only find out when you're at the final stage of the purchase. Ask your dealer for a detailed breakdown of all fees before signing agreements.

4. Loan Tenure Matters

The option for a longer loan term sounds attractive to customers because dealers present those payments as more affordable. The extended loan duration lowers your monthly payment but increases interest expenses during the borrowing period.

Finding a balance between the loan tenure and your monthly EMI is essential. Shorter tenures typically mean higher EMIs, but you will pay off the car faster and save on interest. If you opt for a longer tenure, ensure you are comfortable with the increased total cost.

5. Prepayment Penalties

Another essential factor that might be overlooked is the prepayment penalty. Some dealers or lenders may impose charges if you repay your loan early. While clearing your loan ahead of schedule sounds like a good idea, the prepayment penalties can often discourage you. Always read the terms carefully before committing to a loan.

6. Total Cost of Ownership

Buying a car on EMI is just one part of the journey. Maintenance, fuel, insurance, and repairs all add up over time. While your EMI may seem manageable, it's crucial to consider the long-term cost of owning a car. Sometimes, buyers focus so much on the EMI that they forget to budget for these additional expenses.

Making Informed Decisions

So, what can you do to ensure you're making the right decision? The key is transparency. When buying a car, you need to make sure you have a clear understanding of what you're signing up for. Ask the right questions, understand the terms, and be aware of all additional charges and penalties.

Platforms like ACKO Drive can make the process easier and more transparent. ACKO Drive offers an innovative solution for car buyers in India, providing precise evaluations, honest reviews, and practical guidance. By partnering with reputable dealers, ACKO Drive ensures low prices, faster delivery, and a streamlined process, making the entire car-buying journey more straightforward. Their commitment to transparency means you'll know exactly what you're paying for at every stage of the process.

Conclusion

Buying a car on EMI can make the process more manageable, but it's crucial to understand the full scope of what's involved. While dealers might not always share all the details upfront, digging deeper and asking the right questions is essential. Take your time to evaluate the loan terms, down payment, interest rates, and additional charges. With the proper knowledge, you can confidently drive away in your new car, knowing that you've made the best choice for your financial future.