It is imperative to ask the right queries to your lender before you finalize and sign your car loan papers. This would save you a lot of time, effort, and money. Don’t let the shine of the new car get you blinded, and spare some time to consider and ask the following questions before you sign the dotted line.
- Interest rate and Charges on the loan:
By the time you sign your car documents, you would have already decided on opting for a car loan. Read through the documents carefully and understand the charges levied.
Understanding the interest rate before you finalize any loan and comparing it with loans extended by various banks is the most crucial step. Ask about the minimum down payment required. The interest rates and the down payment amount will decide how much amount you will be paying in installments in the lifetime of the loan!
Car loans also include various other charges, for example, charges on extracting the credit score, car title application, and loan processing fees. Most of the banks have a flat slab of processing charges, while the others calculate the processing charges depending on the loan amount you apply for. It is crucial to understand the charges well before you make the final deal.
- The Loan term and monthly payments:
The loan term is the duration you would be paying back the loan, plus the interest, in equal monthly installments. Ask the lender on the interest charged and the monthly installments that you need to pay. A loan for the tenure of 5 years would cost you lesser monthly installments than a loan taken for the tenure of 3 years. Understand your current financial obligations and the ones which you anticipate in the future before you decide on the term. It is also very important to ask and decide on the exact amount that you might have to pay every month for the loan to avoid any default or financial crunches in the future.
- Pre-closure Charges and Late Fees:
Few banks might provide you with the luxury of no extra charges being imposed on foreclosure of the loan before its specified tenure; however, most of the lenders do charge additional percentage as charges for foreclosure of the loan. It thus becomes important for you to inquire about the pre-closure charges that you might have to pay the lender in case you wish to pay the loan off before its maturity.
Certain lenders also charge late fees for any defaults in paying the monthly installments in the future, upfront! You might have made a calculative move on deciding the loan term and the exact monthly installments that you might need to pay considering all other outstanding credits and other financial liabilities; but also keep a watch on any additional charges that are included in the loan, like the late payment fees.
Lenders ask for your proof of income if you are a salaried employee, or assets and past couple of years’ tax payment documents before extending any loans. In certain cases, the lenders may require you to purchase comprehensive insurance coverage before signing the loan off. Ask your lender about the documents you need to provide before you sign your loan papers.
On few instances, the dealers assure you that the loan processing is in the queue and let you drive home your new purchase but later call you to inform that the loan processing procedure is actually delayed or failed; eventually offering you an alternative which might be of higher interest rate and would add on to unforeseen adverse financial circumstances.
In the end, buying a car is not an everyday affair and you would possibly not think of exchanging your first car in the first few years of purchase or at least before you have paid the loan off for it. Hence, ask the right questions before you sign your car loan papers to save yourself from adverse financial liabilities.