Choosing the right tenure for your car loan is a crucial decision. If you choose a shorter loan tenure, your EMIs will be higher. Whereas, if you pick a longer loan term, you will pay more interest over time.

So, how do you strike a balance? That’s what this article can help you with. We’ll cover key factors, from your monthly budget to the lender’s fine print, so you can secure a car loan that suits your repayment capabilities.

What Do You Mean by Loan Tenure?

Think of loan tenure as the schedule you agree to for paying back every rupee you borrow. If you pick a 36-month loan tenure, you’re signing up to split your total cost (principal loan amount + interest) into monthly payments for three years.

The longer you stretch the loan tenure, the smaller EMI becomes, but you end up paying more interest over loan tenure.

Factors to Consider When Choosing a Car Loan Tenure

When deciding the tenure for your car loan, you should keep the following factors in mind:

1. Your Monthly Cash Flow

First up, look at the numbers in your checking account after you’ve covered unavoidable expenses. Whatever’s left is the maximum you can pay as an instalment for your car loan.

If you go for a shorter tenure and don’t have enough cash flow, you will struggle to pay EMI on time. So, don’t take that risk.

2. Loan Interest Rate vs. Total Interest You’ll Pay

Never look at interest rates in a silo, but compare the various options by assessing both interest rates and total interest you will pay.

Loan providers often charge lower rates for shorter-tenure car loans because longer tenure loans are riskier for them. So, compare the total interest payment for different options before you choose a tenure for your car loan. You may be surprised to find a huge overall difference when you take this into account.

If you need a good partner to secure your car loan, SK Finance can make your dream come true. It has helped many families buy a car by financing their loans with competitive interest rates and flexible repayment schedules.

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Also, don’t forget to negotiate interest rates when taking a car loan, as many loan providers may offer some leeway.

3. How Fast Your Car Value Depreciates

New cars can shed up to 30% of their value in the first 2-3 years alone. If you spread your loan over too many years, you risk owing more than the car is worth.

Aim for a term that roughly matches the steep part of the depreciation curve. For most vehicles, keeping it under five years means you’re paying your loan faster than your vehicle’s resale value depreciates.

4. Principal Loan Amount

This is a no-brainer. The more you pay upfront, the lower your loan amount will be, and the faster you can pay it off.

Loan providers like SK Finance make things easy for you by helping you calculate exactly how much EMI you’ll pay for a given loan amount and interest rate. Use this EMI calculator to compare various options before you choose a tenure.

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5. Repayment Flexibility and Penalties

Before you sign, get clear on prepayment penalties (some lenders charge a fee if you pay off the loan early). Also, ask whether you can skip or reduce payments easily and if there’s flexibility for car loan refinancing later on.

Understanding these terms will help you avoid any unwanted monetary  surprises later. Loan providers like SK Finance, which provide transparent and flexible terms, allow you easy options for prepayment and other scenarios.

Here’s its schedule of charges for car loans. See if these suit your needs and feel free to contact the team if you have more questions.

Also, if you’re buying a car for business use, you may claim some car loan tax benefits. See if you meet the eligibility criteria and benefit from those.

Choosing the Maximum Tenure for a Car Loan Based on Your Needs

Most banks and financiers in India offer a maximum tenure of 7 years for car loans. However, you can choose much shorter tenures if you want.

Here’s a guide to help you choose the right tenure for your car loan.

Shorter Tenure (1–3 Years)

Ideal for those who:

• Have room in their monthly budget for higher EMIs
• Want to pay less interest overall
• Aim to avoid owing more than the car’s value
• Want to upgrade to another car shortly

Medium Tenure (4–5 Years)

You can opt for this if you:

• Need a balance between EMI and total interest paid
• Want payments that align with a car’s typical depreciation
• Seek steady progress toward full ownership
• Intend to keep the car for at least 5-6 years

Longer Tenure (6–7 Years)

This is suitable for those who:

• Require lower monthly EMIs to free up cash flow
• Face irregular income or tight budgets
• Plan to use extra savings for other goals
• Don’t mind a higher total interest in exchange for smaller payments

What is the Best Tenure for a Car Loan?

Well, the answer depends on you and your financial situation. Ideally, the sooner you pay off your car loan, the better. However, not everyone has that financial standing or flexibility.

So, use this guide to assess how much EMI and interest you’re willing to pay and then take a call.

If you want vehicle loans with flexible terms and great payment options, consider SK Finance. You can visit your nearest branch to get a car loan on terms that are comfortable for you.