If it is your first car, having qualms about the process of purchase is an accepted fact! With people around advising you on the right lender to approach for a loan, and numerous websites assisting you in comparing the interest rates across various car loan lenders, the entire process can get a bit overwhelming! Rest assured. Though the process is not very simple, the following few tips before you buy your first car will surely help you avoid any unanticipated financial conditions surrounding the car loan and will help you avoid any misunderstandings on the repayments and other complications around loans.
- Credit Score: Understand your credit score before you apply for a car loan. Your credit score can be easily be obtained from the CIBIL website. Make sure you have no loan or credit defaults and have a good credit rating. Banks and lenders consider your credit score before they sanction any loan. A lower credit score may still get you a car loan, but the interest charged could be higher than what it would have been if the credit score was above a certain minimum requirement.
- Loan term: Car loans, like all other loans, come with a range of years as the term for repayment. Research! It is always better to do some homework and understand the term you should apply your car loan for and the interest you are being charged. Consider all your present and future financial liabilities before you decide on the term you would want your loan repaid. A loan of higher tenure would mean lower monthly payments for the entire tenure, with the interest rate remaining same for a loan of lower tenure. The effective amount you would be paying as an interest would still be higher at the end of the tenure for a loan of a higher term, but it would help you plan your monthly budget well with lesser monthly payments towards the loan.
- Processing fee: Car loan lenders charge additional fees for processing the loan. The processing charges may across various lenders. The processing fee is either charged as a flat amount or is calculated on a certain fixed percentage of the total loan amount applied for.
Apart from processing fees for loans, there could be other charges levied for requesting your credit score and car title application. Make it a point to understand the break-up of the charges included in the processing fees.
- Foreclosure fee: Much like processing fees, lenders also charge a certain percentage to be paid in-case you plan to pay the loan off before the end of tenure. So, if you are expecting a salary hike or bonus on your way, understand the foreclosure charges that you might have to pay for paying the loan off before the end of tenure.
- Monthly Installments: Nothing could get you more elated than buying your first car with equal installments fitting your monthly budget! But, make sure you are clear on the exact amount you would need to pay every month towards the loan to avoid any unpleasant surprises on the bill in the future. Though the interest rates remain more or less similar for most of the lenders, even a percentage less rate of interest could lower your monthly installments and the overall interest paid on the loan by a significant amount.
- Late fees: Apart from processing and foreclosure fees, certain lenders charge some additional amount, usually a specified flat percentage, as late fees in case you default on any of the monthly installment repayment in the entire loan tenure.
- Documents: Before you apply for a car loan, check with your dealer and the lender, the documents you would need to produce to avail the loan to avoid any loan processing failures due to lack of documentation. The documentation could vary from salary slips to past few years’ income tax returns statements. Keep all that is required for the loan process, ready!
As excited you would be in knowing everything about the model of car you choose to buy, these tips would certainly help you in understanding the loan and payment process as a first-time buyer!