Cars are no longer a luxury; every home needs to at least have one car to run necessary errands. Even if you’re one of those people who prefer not to get stuck in traffic and would rather get a cab, an uber, or just use public transportation, you’ll still need a car at a certain point. However, due to inflation and soaring prices sucking the life out of us like dementors, it can be difficult to purchase a car and pay in full. But don’t worry; we’re going to guide you through the process of taking a loan for a car. So, don’t miss out on our pro tips that you should keep in mind before you sign up for a car loan.
Car rate interests range from 8.5% to 14% annually, depending on a variety of factors. Such factors include your monthly income, the car model you’re looking for, and the loan tenure- which we will tackle later in the article. Moreover, whether the difference in the interest rate is big or small, it can highly affect the overall interest cost. So, search interest types and make sure that you choose the best option according to your situation. It’s also important to note that opting for a floating interest is more recommended, as it can be in your favor if the interest rates fall and it will also enable you to make prepayments without penalties.
Equated monthly installments or EMI is the second most important thing to consider after the interest rate. There are two important factors to take into account regarding your EMI car loan, namely the loan amount and loan tenure. Do not, under any circumstances, let the total of your EMIs surpass 40% of your monthly income. Therefore, our advice is to make sure that your car loan EMI, insurances, and your systematic investment plans or SIP takes up too much of your disposable income.
We’re pretty sure you read 20 reviews or so before you go to a restaurant. You should do exactly the same when you’re applying for a car loan. So, don’t spare any effort in looking for different offers from different banks and lenders. There are online websites dedicated entirely to comparing personal loans offers from major banks. Another pro tip is to compare the offers from manufacturers and dealers before you settle on a bank offer.
Your credit score will highly affect the lenders’ approval of your car loan. Moreover, some lenders have begun to use credit scores for setting interest rates. Typically, a good credit score starts at 750. If your credit score is below that, don’t worry because there are multiple ways to improve it. So, make sure that you have your credit score report ready before applying for a loan, and that way you’ll be able to determine the situation and take action.
Loans are like a game of dominos; one thing is bound to affect the other no matter what. Therefore, lone tenures will have an influence on your interest rate as well as the loan EMI. The loan tenure can vary up to 7 years; consequently, there’s a direct correlation between the lone tenure and the interest rest; meaning that the longer the loan tenure is, the higher the interest rate will become. Furthermore, a higher tenure will reduce your EMI, giving you more time and comfort to make repayments. Adversely, if you opt for a shorter tenure, 2 or 3 years, for example, your EMIs will substantially increase- which could make you more stressed out.
The total price of a car will differ from one lender to another, depending on their criteria of how much money they’re willing to finance. What you can do is maximize your down payment as much as you can, as it can reduce the overall loan amount. However, this doesn’t mean that you should sleep on the ground and live on noodles to afford that downpayment. So, be smart about it and don’t pressure yourself by using your emergency or long-term investment funds to afford a high down payment.
This is a fee charged by the lenders to cover the costs incurred during the loan process. In simpler words, it’s the money that lenders use up while evaluating your loan application. This fee is usually a small, non-refundable amount of money. The good news is that lenders will sometimes waive this fee or offer a discount during festive seasons!
Despite paying off your loan ahead earlier is considered a relief or a good thing, some lenders will make use of it. So, make sure that you check if there’s a prepayment penalty before you take an action with a lender. A prepayment penalty is what some banks, or freelance lenders, charge if you pay all or part of your loan ahead.
Used Vs New Cars
Getting a brand new car will definitely be different from getting a pre-owned one. The distinction will show in the loan terms of each category. So, make sure that you do enough research on the different processes for both, then decide what you see best for yourself.
Terms & Conditions
We know and you know that nobody ever reads the terms and conditions of anything. However, this time, please don’t skip it. So, make sure that you go through all the details carefully before you make the final call. This will save you a lot of undesired consequences.
In a nutshell, purchasing something as expensive as a car can be a little bit overwhelming. We do understand that there are too many options and some legal work that you may not be familiar with, which can intimidate you. Nevertheless, it’s nothing to be afraid of. The internet has made life so much easier and all you should do is browse enough to acquire all the knowledge you need. Having said that, it is still useful to ask for help from those with similar experiences as well as search and compare offers from banks and lenders.