Is buying a new car on your wish list? Financing a new car is easy if your credit score and income match the eligibility criteria. You should select your car loan smartly as it can make a huge difference to your borrowing experience and help you save money. Do you want to know what you should keep in mind before taking a car loan?
Let’s check out the top 10 tips to follow while taking a car loan.
Rate Of Interest
Interest on a car loan varies from 6.75% to 9% pa. The factors that decide the interest on a car loan include your credit score, income, loan tenure, car category/model, down payment, etc. If you want to grab the lowest interest offer, you should compare all the available car loan offers online and contact the top lenders offering loans at the lowest interest rate. Lenders provide car loans with both floating and fixed-rate interest options. If market trends point to rising interest rates, you can opt for a fixed-rate loan.
Check Your Credit Score Before Applying For A Loan
A higher credit score can help you get a car loan at an attractive rate of interest rate. So, before applying for a car loan, you must check it independently. If your credit score is not up to the mark, you may take corrective actions to improve your score. Repaying your existing loans and lowering your credit utilisation ratio can help in improving your credit score. Once your credit score improves to a reasonable level, you may apply for a loan.
Deciding The Right Loan Tenure
A longer loan tenure may help you pay lower EMIs, but you have to pay more interest on your total loan amount. If you are comfortable paying higher EMIs, you should opt for a shorter tenure. Usually, lenders allow up to 7 years to repay a car loan. Longer tenure suits borrowers who find it challenging to repay higher EMIs or those who require lower EMI to fit into the bank’s loan eligibility norms.
Charges Applicable On The Loan
Some lenders charge lower interest on the car loan, but at the same time, they may charge higher processing fees and other charges associated with the car loan. So, you may land up paying more charges than you may save by choosing a car loan for its lower rate of interest. Choose lenders who levy minimum charges along with a lower interest rate.
Are you looking to repay a car loan earlier than your car loan tenure? Beware, your lender may levy prepayment charges if you prepay or pre-close your car loan! When choosing your car loan lender, check in advance if they impose any prepayment or pre-closure penalty. Go with a lender who charges the lowest penalty on car loan prepayment.
Services and Processing Time
Applying for a car loan should be easier with minimum documentation. You should be able to access your loan details online and avail banking services online on your loan account. All this play a significant role when you plan to apply for a car loan. Some lenders may process your loan in a few minutes, while others may take days to sanction the loan. After the loan is processed, you may require the lender’s support from time to time for services like loan account statements and facilities like online banking, etc. The loan is going to take several years to pay off. You would want those years to be as frictionless as possible. So go with a lender where your customer service requires are optimally met.
Loan Amount Eligibility And Down Payment Required
Loan eligibility and down payment requirements may vary from lender to lender. Choose the car loan lender that matches the down payment amount you are comfortable with and whose eligibility norms are easy for you to comply with. Some lenders may finance even 100% of the car price in some cases, while others may finance much less.
Carefully Read The Fine Print Of The Loan Agreement
Sometimes the car loan may look very attractive when you apply for it, but later on, you may find yourself stuck in the wrong loan product. If you want to avoid such a situation, carefully read the fine print of the loan agreement. How often will the lender revise the interest rate? What are the charges applicable to your loan? Read all the essential details carefully so that you’re not caught surprised later.
Alternative To Car Loan
Sometimes people fail to meet the car loan eligibility criteria by the banks. They don’t need to be upset because they may still have some alternative options in hand. They may check loan options like loans against securities, FDs, loans against gold, and other secured loan options to arrange the money for buying a car.
Check Tie-up Of The Car Company With The Lender
Before you finalise the car loan, inquire from the car company if they have an exclusive tie-up with any lending institutions. Car companies and banks often tie up wherein they offer loans for specific car models on attractive interest rates and easy terms. Under such an arrangement, you may get benefits like a lower rate of interest, zero processing fees, faster processing of car loans, etc.
(The author is CEO, BankBazaar.com)