SBI Car Loan – Partial Payment Advisable?

[Figoian]

Guys

I have taken Car Loan from SBI in March 2011 for 5 Years.

• Loan Amount: INR 4L
• Interest Mode: Floating
• Base Rate: 8.25%
• Interest Card Rate: 11.25% (3% + Base Rate)
• ROI for 1st Year: 9.25% (2% below Card Rate)
• ROI for 2nd & 3rd Years: 10.25% (1% below Card Rate)
• ROI for 4th & 5th Years: Card Rate as applicable

As per the agreement, Partial Payment anytime after 1st year is allowed with no charges. Hence, I thought of paying off around 1L for now. However, when I checked with the bank I understand that the EMI will not be changed or reduced but the tenure will be, based on the outstanding. My current outstanding is about 2.7L and 1L shall be paid off leaving 1.7L as balance.

Now, should this be a good choice to pay of this 1L? I too think so, but unable to work out on the net savings on doing so.

Can someone help me understand it better and make a wise choice? Thanks.

Remember, the Interest Mode is Floating and is currently @ 11.7%

 

[P3T3R]

Calculate the total amount you will end up paying at the end of 5 years. Then calculate how much you end up paying by making the prepayment. Calculate the difference and see how much you save and decide if it is worthwhile.

 

[carfreak]

As per the agreement, Partial Payment anytime after 1st year is allowed with no charges. Hence, I thought of paying off around 1L for now. However, when I checked with the bank I understand that the EMI will not be changed or reduced but the tenure will be, based on the outstanding. My current outstanding is about 2.7L and 1L shall be paid off leaving 1.7L as balance.

Yes, this is how 'part payment' mechanism works. EMI wont be reduced, but the tenure will. So you would be saving on interest outflow. Even I have my car loan from SBI. But the difference in terms is - part payment is allowed immediately. It is always better to part pay during initial phases of loan to reduce interest burden later on. Infact I part pay when ever decent saving is accumulated. So don worry.

 

[Figoian]

Calculate the total amount you will end up paying at the end of 5 years. Then calculate how much you end up paying by making the prepayment. Calculate the difference and see how much you save and decide if it is worthwhile.

P3T3R - The Interest Mode being “Floating”, I will not be able to ascertain the actual total cost for all 5 years, may be an approximate one though. But, that’s the whole point, am I making the right calculation.

Yes, this is how 'part payment' mechanism works. EMI wont be reduced, but the tenure will. So you would be saving on interest outflow. Even I have my car loan from SBI. But the difference in terms is - part payment is allowed immediately. It is always better to part pay during initial phases of loan to reduce interest burden later on. Infact I part pay when ever decent saving is accumulated. So don worry.

Agreed for sure. However, my concern is more to understand the net savings by doing this part payment. Would there be a best way to calculate that?

 

[dharmesh]

Simple calculation would be if you keep that 1 Lac for FD or any other saving plans, what would be return after 5 years and how much more you would be paying in Car Loan if you don;t do part payment now. Just check both of this and you will get the answer.

 

[anshuman8]

HI Figoan,

The base rate of SBI is 9.7% w.e.f. 4/2/13 (last revised).

Hence present card rate for Car Loan is 10.45%

Source - :: STATE BANK OF INDIA :: Safe Banking With SBI ::

Hope this is the rate applicable to you as well.

Kindly re-calculate based on these rates.

Cheers,
Anshuman

 

[threeace777]

figoian

by any chance do you have a PPF account with SBI for tax benefits ?

if yes you could loan that amount at interest rate of 1% upto 3 years
and if exceeds 3 years than 6% :)

 

[manjoo]

The Interest Mode being “Floating”, I will not be able to ascertain the actual total cost for all 5 years, may be an approximate one though. But, that’s the whole point, am I making the right calculation.

That is why i went for fixed interest HDFC quoting interest rate of 11% .

 

[Figoian]

That is why i went for fixed interest HDFC quoting interest rate of 11% .

True. But the ROI with all other private banks then were way too high compared to SBI. However, I am still running on profit compared to the Fixed Rates offered by then.

figoian

by any chance do you have a PPF account with SBI for tax benefits ?

if yes you could loan that amount at interest rate of 1% upto 3 years
and if exceeds 3 years than 6% :)

@threeace777 - Yup, I do have. Didn't know about this. Thanks for the info.

However, I don't have that much in the PPF A/C

 

[anshuman8]

figoian

by any chance do you have a PPF account with SBI for tax benefits ?

if yes you could loan that amount at interest rate of 1% upto 3 years
and if exceeds 3 years than 6% :)

Hi,
Can you illustrate further on this with detailed info and if any online link is there.

Thanks,
Anshuman

 

[threeace777]

i knew you would ask that

 

[anshuman8]

i knew you would ask that

So what is your answer ?

 

[jitendrakulkarni]

Your payment process is termed as ‘part payment’ mechanism. By following this particular process it is absolutely correct that loan amount’s EMI won’t be reduced but its tenure can be. By this way, you would be saving on interest outflow. I have also taken my car loan from SBI, but the difference is that the part payment was allowed immediately. Therefore it is always better to part pay during the initial phase of the loan to reduce the interest burden later. Source: EMI calculators.in