Anyone dealing with multiple loans often faces this dilemma of choosing which loan to close first. Running multiple loans can be burdensome. It is always advisable to pay off one loan first before beginning with other, however, if you have two loans simultaneously going on then one should strive for closing one as soon as possible and then shifting focus to repaying the other loan. This is also good for your credit score and building an excellent credit profile.
From amongst a car loan and a house loan, one may get confused in which loan to prepay first. And the answer is a – CAR LOAN. One may wonder why not a home loan which is of long tenure and higher loan amount. One can easily pay off smaller loans once a bigger loan is paid off. But this is not the way one should perceive the repayment of loans. A car is a depreciating asset whereas a home or a property is an appreciating asset. It is advisable to finish off the loan with depreciating asset faster in comparison to a loan with an appreciating asset.
If you face the doubts, then compare the two loans on account of the following aspects before making your decision.
- Loan Interest Rate: Car loans usually have a higher rate of interest in comparison to the housing loans which offers a low rate of interest because of the longer loan tenure. If one pays off a loan with a higher rate of interest quickly either by prepayment partly or wholly then one can save on some money which would otherwise have gone as interest. However, it is important to check with the lender about the pre-payment charges before finally making the payment as it could result in being a more expensive affair.
- Loan Tenure: A car loan has a shorter loan tenure in comparison to the home loan which is usually around 20 years or often even more. Getting rid of a car loan allows you to be free with one loan so that you can focus on one long term loan only. This allows you to manage your finances appropriately. A car loan comes with a higher rate of interest and the EMI is also higher in proportion to the total loan amount. Finishing off EMI of a car loan reduces the burden off you and helps to continue paying the home loan EMIs comfortably.
- The asset involved: The whole game revolves around the asset. One takes a loan to achieve their financial goal of buying themselves an asset. Both a car and a home are great for one’s status. But when it comes to the value and what you will have at the end of the loans, then, on one hand, you will own a car whose value would have depreciated to lows whereas on another hand there will be your home whose value will keep on appreciating. Thus, it is a smart move to finish off the loan with depreciating asset faster in comparison to the loan with an appreciating asset.
Different lenders have different offerings in terms of different loans. Before choosing on the lender, it is always advisable to compare the lenders and choose the one which best suits your needs and requirements. LoansJagat offers a robust and simple platform wherein the borrower can compare top Banks and NBFCs for their terms like the interest rate, loan tenure, loan amount, foreclosure charges and prepayment charges before zeroing on a loan. One should always try to negotiate with the lender for better interest rates, processing fees and charges. And for that, a good credit score comes handy.
Using the LoansJagat platform, the borrowers can also calculate the total interest rate which they will be paying off at the end of the loan tenure with various loans. Apply for a home loan in India through them to grab the best deal.
Prepaying the loans on time is the key if you wish to keep your credit report sorted. Finishing one loan with short loan tenure is advisable. Also, it helps you in better management of your finances and you can plan on achieving another financial goal after getting rid of one debt. Thus take calculated risks, pay off loans and achieve your long term and short term financial goals with ease.
Read More: 5 Mistakes to Avoid when Taking a Car Loan