Should You Go For A Floating Rate Option For Car Loan, Know Here

While taking a car or loan-auto loan, you need to make a wise choice and choose between the option of fixed rate or floating rate. Know here what kind of interest rates are trending these days

File Image

हिन्दी में पढ़ें

New Delhi: Everyone dreams to own a car, owning a home, and living a good lifestyle. The recent auto sector sales data also indicates that car sales are gradually picking up post lockdown.

Coupled with increasing purchasing power, the automobile sector now seems to reflect increasing numbers in the time to come. The growing amount of auto loans also ensures that the car market is now witnessing improvement.

However with regard to auto loans or car loans people often face a dilemma whether to lend a loan at a fixed rate or floating rate, so that the EMI does not burn a hole in their pockets.

Taking a car loan at a floating rate is beneficial

At the moment, significantly the advice points towards a floating rate for a car loan or auto loan. We are saying this because interest rates have recently seen a drop and interest rates are expected to fall further. 

Daily Reducing Balance Loan

Interest in any daily reducing balance is levied on the balance left at the end of that day and is assessed for the entire month. That is why you are told to pay your loan EMI at the start of the month, which becomes beneficial gradually. If you pay your EMI during the last days of the month, it may have a negative effect on your loan installment.

This can be understood from an example that the EMI for a month with 31 days will be lower than in February as it has fewer days. Since we are currently in the time period of declining interest rates, it is advisable for you to take a floating rate loan as compared to a fixed loan.