10 Things To Consider Before Taking A Car Loan | Car Loan Tips & Tricks
10 Things to Consider before Taking a Car Loan
Cars have become an important part of our life and nowadays, buying one has also become much convenient. For a flourishing auto purchase, you have to get quite a few things right. As for starters you have to choose the right car, get a good price, and fund the purchase in the most affordable way.
Are you planning to buy a brand new car? If yes, then you might have considered applying for a car loan but, getting a car loan is not that easy. There are various factors, the tips and tricks that you have to keep in mind. Here are the 10 things that you need to consider before taking a car loan.
Decide: New, Certified Pre-Owned Or Used?
You might have your heart set on a specific car, but there is a possibility that you won’t be able to afford it. A good rule of thumb is to squander no more than one fourth part of your monthly household income for the regular payment of EMI and this figure not only supposed to include monthly car loan payments but all other vehicle costs, including fuel and car insurance.
When you apply for a car loan, you need to make sure of getting quotation from all the sellers of the desired car. Each seller ties up with a different bank, so they quote dissimilar rates and supplementary charges. Visiting all the dealers first and getting a quotation of their rates along with financial charges is also an important caution
Explore the Invoice Price
You must have done some research yourself about the cars that you shortlisted, on the various websites on internet and most of the times you may have came across the invoice price (for new cars) or wholesale price (for used cars), as well as the company’s recommended price (for new cars) or the seller’s asked price (for used). While invoice charging on mediator sites aren’t completely accurate, it is a good pointer of what the seller paid for the car, and it’s the best place to begin negotiating. Aim to reach an agreement on the sale price that is close to that amount before any concessions are applied, and keep in mind that the seller needs to craft at least a few thousand rupees’ profit to cover the operating costs of running the dealership.
Compare the Interest Rates
The most important thing that you have to to do before actually applying for a car loan is to evaluate the interest rates of different banks or financial institutions. This is most important as there are no standard rates in the market. The interest rate varies from bank to bank and even a marginal difference of few points in the rate of interest could make a huge difference to the money you have to re-pay the bank.
Complete your documents
All the banks and financial institutions follow the KYC(know your customer) norms for granting loans. They confirm your past credit record, so you ought to have all the necessary documents with you. Some of the important credentials are income proof, bank statement, valid address proof, income tax return statements of past years and any more.
Try to Borrow as Low as Possible
The more you borrow the more interest you pay over the loan tenure. The longer the term, greater the interest you pay over the loan term. Please note the cost of loan is same irrespective of loan amount or loan term. It is just the absolute interest amount that increases with loan amount and term. Car loans are typically available with loan tenor of 1 to 7 years.
I understand this is something you don’t control beyond a point. Low loan amount will result to paying more from your pocket initially (down payment). In addition to it, shorter loan term means higher EMI burden.
Ensure Your Credit Score
Credit score these days has turn out to be the most significant criteria in authorizing loans these days. Your credit score defines your loan repayment ability and thus, a low credit score would result in less loan amount or higher interest rates for you. So Better check your credit score before applying for a car loan.
Explore Schemes and Offers
You will find many eye-catching deals offered by different banks on car loans. If you have a sound profile then the bank could even present you a personalized deal. You could also get a 0% finance scheme on your loan amount. Overall, with the help of the above mentioned points you could get a better car loan without any hassles and enjoy riding your car without any worries. Make sure to complete all necessary loan formalities before proceeding with a loan.
Evaluate Your Budget
Becoming the owner of your dream car with the help installments is clearly a wonderful prospect to get excited upon. Although, do think about the affordability of the EMI before you take the plunge. You wouldn’t want to sign an agreement to pay monthly installments that are large fractions of your household income, just on the car that you bought.
Processing cost — Lesser the Better
Depending upon the amount of the loan, processing fee usually fluctuates between Rs 2,000 – Rs 5,000. This may look like a tiny amount. Nevertheless, car loans are small ticket loans too. If you are taking a loan of Rs 4-4.5 lacs, this will easily run up to 0.5-1% of the loan amount. From time to time, during festive seasons, banks even put aside the processing charges. Be alert for such offers. Do understand that car loans are short term loans. As the loan tenure goes down, the impact of interest rate goes down significantly.