Getting a car loan doesn't have to be a nightmare, even with bad credit.

Reducing Monthly Installments – Tips for a Lower EMI

Posted October 29, 2013 by

According to Transunion, the auto loan industry has recovered sharply since record high delinquency rates in 2008.  For consumers, this means that auto-loan interest rates are at a record low, and lending agencies are willing to lend more money than ever before.  With more Americans seeking financing for their new and used car purchases, consumers should keep the following tips in mind to reduce monthly payments on car loans.

Learn your Equated Monthly Installments

Dealerships and lenders should provide you with the Equated Monthly Installments, or EMI, for the life of your loan.  This number is the total cost of your loan (principle + interest) divided by the total number of months in the loan.  The EMI is the most important number for your loan, as it determines the overall affordability of the loan package.  Only accept a loan if you think that the payments will be affordable throughout the entirety of the loan.

Pay down the Principle Early

If you can afford it, make a monthly contribution directly to the principal of your loan.  Extra payments will reduce the length of a loan, greatly reducing the total amount that is paid in interest over the life of the loan.  Depending on the interest rate for your loan, extra principal payments can contribute more to your financial security than investments or savings.

Extend the Term of an Auto Loan

Some lenders will allow you to extend the life of your current loan, usually in the event of sudden employment or financial hardship.  Extending the term of a current auto loan will reduce monthly installments on that loan, but it will increase the total amount that you pay throughout the life of the loan.

Auto Loan Refinancing

With interest rates as low as they are likely to be for the foreseeable future, now is a great time to refinance existing auto loans.  Refinancing takes advantage of new interest rates, paying off old loans and transferring loan balances to new loans with low interest.  Most lenders that offer car loans will also offer some form of refinance.

Loan Consolidation

Sometimes, borrowers can save money by consolidating their loans into a single umbrella loan.  Normally the rates that you pay on auto loans are among the lowest interest rates that you will receive on any loan, but when combining secured and unsecured debt it is possible to end up with a loan that has a lower net interest rate than the rest of the loans combined.  This occasionally saves money for borrowers.

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