Can Anybody tell me the complete procedure of a Pre Payment option on a car loan?

Question

Hi All,

I wanted to know how Pre Payment option on a Car Loan works out.

For Ex. I took a loan of 3.43 Lakhs for 7 years and my monthly EMI is 5694 (10% P.A reducing Balance)

Now suppose I plan to choose the Pre Payment option after 3 years, then what is the total amount I have to pay.

Do I have to pay only Rs. 343000- 204984(5694*36) =138016 Or something extra, assuming there is 1% Penalty charges on it.

PLease help me out in this query.

Vaibhav

Answer 1

It is not the way you have made calculations by "original loan minus 5694*36".

From EMI, a portion goes to the principal amount and balance to the interest. During initial years, a significant portion goes for interest and a small for the principal. As the time period of EMI progresses, this trend get reversed. Refer to the detailed payment schedule that would have been given to you at the time of availing the loan. If not given, you can insist for the same now and can come to know that after each installments paid how much principal is still outstanding. On this outstanding amount, the lender may charge some penalty as per the terms of the loan.

For pre-payment, you should get in touch with your lender/bank who would hand you out the detailed calculations, balance outstanding as on the date and the pre-payment penalty amount separately.

Answer 2

All banks levy some pre-closure charges. It is around 2 to 4%.