Car Loan Prepaying- Procedure & Advantages

When a borrower makes an early payment on a car loan, either a partial or full payment, this is referred to as prepaying a car loan. However, there are also more advantages to prepaying a car loan that the borrower may take advantage of.

We will describe the benefits in this post and then calculate the prepayment price. But first, let us examine the method for car loan foreclosure.

What are the Steps in the Procedure for Car Loan Foreclosure?

• When you purchase a car, the loan sanctioning bank's name will appear on the vehicle's RC (Registration Certificate).

• The borrower is responsible for collecting all post-dated checks given to the bank at the time the auto loan was foreclosed.

• The borrower must get a No Objection Certificate (NOC) from the bank certifying that there are no outstanding debts. The borrower must produce the supplier of the NOC insurance and the RTP (Regional Transport Office).

• At the time of loan foreclosure, the borrower must possess all necessary documents, including tax returns, insurance policies, an emission certificate, and an original copy of the registration certificate.

• Solicit from the bank a Form 35 declaring that the Loan conditions between the borrower and the bank have been terminated.

• Submit photocopies of all updated records to the insurance provider, including RCs, insurance records, and NOCs. Thus, the insurance provider can provide the borrower with a notice of mortgage termination.

What Are the Advantages of Car Loan Prepayment?

Interest savings

Monthly EMI payments are required of the borrower, Prepayment of a Car loan, on the other hand, can lower the cost of borrowing, i.e. the loan's interest rate. However, this will rely on the loan agreement's provisions.

Unlock financial resources to be used for other purposes

This is one of the primary advantages of prepaying a car loan, since it frees up cash for other obligations and investments. Additionally, the borrower may utilize the proceeds to pay off other financial obligations such as a home loan or an educational loan.

How to Calculate Prepayment Charges?

Prepayment Charges are a bank-mandated fee assessed on early repayment of a car loan. Prepayment Charges must be calculated depending on the date the car loan was issued, the loan's term, the interest rate, and the loan's original amount, among other factors. Certain computations need the number of months remaining on the loan's EMI payment schedule. However, all inputs will be adjusted in accordance with the loan agreement's provisions.