Flexible car loans provide flexibility to the borrowers in loan repayment. Usually, the flexibility translates to lower EMIs upfront or some concessions during the loan tenure. The loan repayment does not have to happen through equated monthly installments (EMIs), where you pay the same amount every month to the borrower. The lenders can always structure loan repayment schedules such that the EMIs are lighter on the borrower pockets. Expectedly, the EMIs will likely be lower in the initial months or years. That makes for better optics too. Most borrowers will find repayment schemes with lower initial payment more attractive. Makes the loan more affordable, at least in the beginning.
No free lunch though. When you pay less (than normal) in the initial months or years, you pay more during the latter part of the loan tenure. While we have looked at how such repayment schedules can be structured in an earlier post, let’s look at specific flexible car loan products from HDFC bank.
Note: The EMI mentioned in various illustrations are for Rs 1 lac loan. If the loan amount is Rs 5 lacs, the EMI will be 5 times the mentioned amount. For instance, if the EMI mentioned is Rs 900 (per lakh) and the loan amount is Rs 5 lacs, the actual EMI will be Rs 4,500 (900 X 5).
#1 HDFC Bank SAFE N EASY Car Loan
You pay a lower EMI for the first few months. And pay a higher EMI for the remainder of the tenure. You pay 899 for the first 6 months and Rs 3,717 for the remaining 30 months.
| SAFE N EASY Car Loan | |
| Months | EMI/lakh |
| 1-6 months | 899 |
| 7-36 months | 3,717 |
| Loan APR (Cost) | 9.25% |
| Regular EMI | 3,192 |
In the second last row, I have calculated the loan interest rate (APR) for such a repayment schedule. For the loan, the interest rate is 9.25% p.a.
In the last row, I calculate the EMI under a regular car loan at the APR mentioned above. For instance, a loan of Rs 1 lac at 9.25% p.a. for 36 months will have an EMI of 3,192.
#2 HDFC Bank 11119999 Car loan
This loan is available for a fixed tenure of 7 years. The EMI in the first year is Rs 1,111 in the first year and Rs 9,999 in the last year.
| 11119999 Car Loan | |
| Months | EMI/lakh |
| 1-12 Months | 1,111 |
| 13-24 Months | 1,222 |
| 25-36 Months | 1,444 |
| 37-48 Months | 1,666 |
| 49-60 Months | 1,888 |
| 61-83 Months | 1,999 |
| 84 Months | 9,999 |
| Loan APR (Cost) | 18.30% |
| Regular EMI | 2,119 |
At 18.30% p.a., this is an expensive loan.
#3 HDFC Bank Pay as You Grow- Step up Scheme
The EMI increases by 10% every year.
| Pay as You Grow | |
| Months | EMI/lakh |
| 1-12 Months | 1,234 |
| 13-24 Months | 1,378 |
| 25-36 Months | 1,516 |
| 37-48 Months | 1,667 |
| 49-60 Months | 1,834 |
| 61-72 Months | 2,018 |
| 73-84 Months | 2,219 |
| Loan APR (Cost) | 9.50% |
| Regular EMI | 1,634 |
Loan interest rate is 9.5% p.a. Compared to the 11119999 loan scheme, this is a much better loan product. The EMIs are quite similar for the first 6 years. In the 7th year, for some reason, the EMI for 11119999 loan scheme shoots through the roof.
#4 HDFC Bank Flexi Drive Car Loan
Under this loan, you can pay a 50% lower EMI for any 3 consecutive months for each year during the loan tenure.
| FlexiDrive Car Loan | |
| Months | EMI/lakh |
| 1-3 Months | 1,826 |
| 4-12 Months | 3,652 |
| 13-15 Months | 1,826 |
| 16-24 Months | 3,652 |
| 25-27 Months | 1,826 |
| 28-36 Months | 3,652 |
| Loan APR (Cost) | 9.00% |
| Regular EMI | 3,180 |
Note that, in this case, loan interest rate will depend on the months in which you choose to pay the lower EMI each year. 9.0% is the lowest you will get (you took the benefit of lower EMI in the first 3 months of each year). Had you taken the benefit in the last 3 months of each year, the loan interest rate (APR) will be 9.68% p.a. There are a few flexible loan products for the premium segment too (Loans > 20 lacs).
In the following illustrations, the EMI mentioned is for a car loan of Rs 20 lacs.
#5 3 Months Low EMI Scheme
Lower EMIs for the first 3 months.
| 3 months Low EMI Scheme | |
| Months | EMI |
| 1 – 3 months | 20,000 |
| 4 – 36 months | 67,860 |
| Loan APR (Cost) | 8.59% |
| Regular EMI | 63,219 |
#6 Bullet Scheme
You make a big bullet payment at the end of each year.
| Bullet Car Loan Scheme | |
| Months | EMI |
| 1 – 11 months | 44,520 |
| 12th month | 2,80,000 |
| 13 – 23 months | 44,520 |
| 24th month | 2,80,000 |
| 25 – 35 months | 44,520 |
| 36th month | 2,80,000 |
| Loan APR (Cost) | 8.75% |
| Regular EMI | 63,367 |
#7 Balloon Scheme
You make a balloon payment in the last month of the loan repayment tenure.
| Balloon Scheme | |
| Months | EMI |
| 1 – 35 months | 49,960 |
| 36th month | 6,00,000 |
| Loan APR (Cost) | 8.76% |
| Regular EMI | 63,376 |
#8 Regular + Bullet Scheme
| Regular + Bullet Scheme | |
| Months | EMI |
| 1 – 11 months | 26,120 |
| 12th month | 1,20,000 |
| 13 – 23 months | 26,120 |
| 24th month | 1,20,000 |
| 25 – 35 months | 26,120 |
| 36th month | 1,20,000 |
| 37 – 47 months | 26,120 |
| 48th month | 1,20,000 |
| 49 – 59 months | 26,120 |
| 60th month | 1,20,000 |
| 61 – 84 months | 26,120 |
| Loan APR (Cost) | 8.76% |
| Regular EMI | 63,376 |
Note that the information on the EMIs may be dated. The EMI numbers have been arrived at by considering a specific rate of interest. The interest rate may have changed since then. And that will impact the numbers. However, the concept and the structure will still be the same.
How Should You Think of These Loans?
There is absolutely nothing wrong in opting for these loans. You can pick up a structure that matches with expected cashflows. However, you must note the following aspects:
- Compare the loan interest rate with the interest rate in a regular car loan product. You do not want to pay a high premium for the flexible car loan.
- Do not just look at the 1st month EMI to assess loan affordability. Look at the complete payment and consider how such repayment can be managed through your cashflows.
Further Reading: HDFC Bank: Flexible Car Loan Products