How to Choose the Right Vehicle Loan Amount for Your Needs?

The Reserve Bank of India (RBI) data shows that car loans have surged by 137% in the last 3 years.

While this is an encouraging sign of the growing aspirations of the country, it also highlights the need to make informed financing decisions. Vehicle loans like a two-wheeler loan, or a commercial vehicle loan come with several considerations, one of which is choosing the right loan amount. Borrowing more than necessary can burden you with high monthly payments, while picking too low an amount may lead to compromising on your desired vehicle.

In this guide, we'll share pointers on choosing a vehicle loan amount that aligns with your financial goals, allowing you to enjoy your new car without the stress of excessive EMIs.

Why Should You Go for a Vehicle Loan?

Here’s why opting for vehicle finance can be beneficial for you:v

1. Immediate Ownership

A vehicle loan allows you to own the vehicle right after loan approval, as opposed to leasing, which only allows for usage. Once the loan is paid off, the vehicle is entirely yours to modify or sell.

2. Flexible Payment Options

Vehicle loans typically offer various repayment tenures, allowing you to choose a plan that aligns with your financial goals and budget.

3. Potential Special Rates

With careful research and by maintaining good credit, you can secure a vehicle loan with lower interest rates, reducing the overall cost of the loan.

4. Access to Better Vehicles

Vehicle loans allow you to purchase without needing to pay the full amount upfront. The right vehicle loan amount lets you select a vehicle that best meets your needs while managing monthly payments effectively.

Factors To Consider When Choosing a Vehicle Loan Amount

Now the question is: how do you choose the right vehicle loan amount? What factors are at play? To determine the best vehicle loan amount, it’s important to assess factors such as your income, expenses, and down payment capacity. Let’s discuss them in detail:

Budget and Affordability

Your financial health should be the first consideration when choosing the right loan amount. Assess your monthly income, essential expenses, and savings goals. Use tools such as an EMI calculator to determine the maximum amount you can comfortably borrow without straining your finances.

Loan Tenure

The tenure of your loan determines how long you will be repaying it. While a longer tenure reduces your monthly payments, it increases the total interest paid over the life of the loan. Conversely, a shorter tenure means higher monthly payments but less overall interest. Choose a loan term that suits both your financial capabilities and long-term objectives.

Interest Rate

Interest rates depend on various factors like your credit score, the lender, and market trends. A lower interest rate can significantly reduce the total cost of your vehicle loan, so it’s worth comparing offers from different lenders. Even a small reduction in the interest rate can make a big difference in your loan's affordability.

Resale Value

Vehicles tend to depreciate rapidly, with most losing around 20% of their value within the first year. When choosing your vehicle loan amount, consider the resale value of the car or the two-wheeler. A vehicle with higher resale value might offer better financial returns if you sell or trade it in down the line, helping offset future costs.

Total Loan Amount

The total amount you borrow should consider not only the vehicle’s price but also additional expenses like taxes, registration fees, and optional extras such as extended warranties. Make sure to factor these into your loan calculations to avoid hidden costs that might strain your finances later. Use tools such as a car loan amount calculator to estimate how much you should borrow.

To Summarise

Choosing the right vehicle loan amount requires a detailed evaluation of your financial situation, including your budget, and future financial prospects.

When determining how to choose a vehicle loan, remember to compare interest rates and loan terms across multiple lenders to secure the best options. If you’re considering a bike purchase, SMFG India Credit offers two-wheeler loans at attractive interest rates and flexible tenures of up to 36 months. If you’re thinking about purchasing a commercial vehicle, we also offer loans for commercial vehicle with tenures of up to 60 months. Apply online today or contact us to discuss the best loan options for your needs.