Due to low budget, many people take the help of car loan while buying a new car. Where some people deposit a down payment for the loan, some want to take advantage of the Zero Down Payment scheme. Zero down payment scheme may sound good to you in the beginning, but it becomes heavy on your pocket later. Here we are telling you what is a down payment and how it would be better to deposit as much down payment as possible than zero down payment.
What is Down Payment?
The part of the price which is already deposited while buying an item (eg car) on loan is called down payment. While opting for a car loan, the customer can directly pay a part of the total cost of the car while the rest will be paid by the bank or NBFC. Whereas, when any goods are taken through ‘Zero Down Payment’, then the customer does not have to pay any kind of down payment.
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Benefit of giving down payment
The direct benefit of paying down payment falls on EMI. Since you have already deposited a portion of the cost of a car, the more down payment you make, the less interest you will charge. For example, a person buys a car for Rs 10 lakh and opts for a loan tenure of 5 years. If he makes a down payment of Re 1 then he will have to take a car loan of Rs 9 lakh and deposit it in 5 years. At the same time, if you make a down payment of Rs 3 lakh, then in 5 years you will have to repay the loan of Rs 7 lakh. In the second case, you will have to pay less EMI and less interest.
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think of it this way
Suppose you are taking on loan the base model of Maruti Swift whose ex-showroom price is Rs 5.90 lakh. Here we are assuming the interest rate of the bank as 8% and the loan tenure is 5 years. So in the first case, if you deposit a down payment of Rs 1 lakh, then your monthly EMI becomes Rs 11,107. Here you are depositing an additional Rs 1,18,656 in the entire 5 years.
On the other hand, if you make zero down payment, then your monthly EMI becomes Rs 13,134. Here you are making an additional deposit of Rs 1,40,276 in the entire 5 years. That is, if you give 1 lakh less in the beginning, you have to pay less of Rs 21,620.