Food, clothing, and shelter have always been cited as the basic necessities for an individual. However, in the world that we live in, a car is no more an item of luxury, but a necessity. So, if you do not have the cash in hand to purchase one, car loans save the day for you! You can strategically plan your budget and pay off the loan every month in equal installments without any financial worries while you drive that bright new shining car! There are certain parameters that you need to be aware of before applying for a car loan. Let’s have a look at all those aspects of a car loan that you need to know before you avail one.
Credit Score and Interest Rates
So you have put in lot of efforts to select the latest model of the car appropriate for your needs and have decided to buy it using a car loan. Before you apply for one, check for your credit score. Lenders and banks mandatorily check for your credit score before they extend you loan for your car. A lower credit score would mean the loan application being rejected or interest rate on the loan being higher than usual. Defaults on credit card bill payment or late payment of any other running EMI could attribute to a lower credit score. It becomes crucial for one to set the credit score right before you apply for a car loan.
Research! Not just on the model of the car that you plan to purchase, but also on the interest rates offered by various lenders. Although most of the banks offer similar interest rates on car loans, few offer slightly lower than the rest. Look for the one which fits your budget.
EMIs and Down-payment
Taking up a loan would mean a lot of financial planning on your part. You need to check how the monthly installments are going to fit your budget. You will have to consider all your living expenses and needless to say, expenses for those happy hours! Choose a loan term that would support your budget and would not put you in a financial crisis for the time you will be paying your loan off. A higher duration loan would mean effective interest paid to be higher than one which is for a comparatively shorter duration, but could go easy on your pocket in terms of monthly installments.
Usually a down-payment of 15-20% is expected of the total amount of loan applied for. This is the part where you can negotiate for a higher down payment and reduced loan term, provided you have enough cash at hand at the point.
Processing, Foreclosure and Late Fees
Banks charge various fees on the loans. Processing fees are charged for processing your loan. The processing fee is usually a flat amount being charged or certain percentage of the total amount being charged as processing fee. This could also include charges attached for extracting your credit score.
Cars being depreciating assets, the earlier you pay a loan off, the better it is. So if you happen to get some cash in your hand during the loan period and wish to pay off the remaining loan amount, the option is still open! However, in most cases the early pay off comes with a cost. Certain percentage is being charged to the applicant for foreclosing the loan. Few banks, though, do not charge any foreclosure fees. However, few may charge additional amount upfront for any delay in payment or defaults in paying off the monthly installments. Look for a deal that works best for you before you decide on a financial institution to apply for a car loan.
Most of the banks come up with promotional offers of approving car loan without processing fee or offering customised loans for the buyers. Look out for such offers and the festive time of the year where such offers could fall in your favour.