Is buying a new car on your wish list? Financing a new car is easy if your credit score and income meet the eligibility criteria. You need to choose your auto loan wisely because it can make a huge difference in your borrowing experience and help you save money. Want to know what to keep in mind before taking out a car loan?
Let’s discover the 10 best tips to follow when taking out a car loan.
Interest on a car loan varies from 6.75% to 9% per year. Factors that determine car loan interest include your credit score, income, loan term, car class/model, down payment, and more. If you want to grab the lowest interest offer, you should compare all car loan offers available online. and contact the best lenders offering loans at the lowest interest rate. Lenders offer auto loans with variable rate and fixed rate interest options. If market trends indicate 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 interest rate. So, before applying for an auto loan, you need to verify it independently. If your credit score isn’t up to scratch, you can take corrective action to improve your score. Paying off your existing loans and reducing your credit utilization rate can help improve your credit score. Once your credit score reaches a reasonable level, you can apply for a loan.
Decide on the right loan term
A longer loan term can 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 term. Usually, lenders give up to 7 years to pay off an auto loan. A longer term is suitable for borrowers who find it difficult to repay higher EMIs or those who need a lower EMI to meet the bank’s loan eligibility standards.
Fees 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 fees associated with the car loan. So, you risk paying more in fees than you can save by choosing an auto loan for its lower interest rate. Choose lenders who charge minimal fees with a lower interest rate.
Are you looking to pay off a car loan sooner than your car loan term? Be careful, your lender may charge prepayment fees if you repay or pre-close your car loan! When choosing your car loan lender, check ahead of time to see if they charge a prepayment or pre-closing penalty. Go with a lender that charges the lowest penalty on car loan prepayment.
Services and processing time
Applying for a car loan should be easier with minimal documentation. You should be able to access your loan details online and benefit from online banking services on your loan account. All of this plays an important role when considering applying for a car loan. Some lenders can process your loan in minutes, while others can take days to sanction the loan. Once the loan is processed, you may need the help of the lender from time to time for services like loan account statements and services like online banking etc. The loan will take several years to be repaid. You would like these years to be as smooth as possible. So go with a lender where your customer service needs are optimally met.
Loan Amount Eligibility and Down Payment Required
Loan eligibility and down payment requirements may vary from lender to lender. Choose the auto lender that matches the amount of down payment you are comfortable with and whose eligibility standards are easy to meet. Some lenders can finance even 100% of the price of the car in some cases, while others can finance much less.
Read the fine print of the loan agreement carefully
Sometimes the car loan can seem very attractive when you apply for it, but later you may find yourself stuck in the wrong loan product. If you want to avoid such a situation, read the fine print of the loan agreement carefully. How often will the lender review the interest rate? What fees apply to your loan? Read all the essential details carefully so as not to be surprised later.
Alternative to car loan
Sometimes people do not meet the car loan eligibility criteria of banks. They need not be upset as they may still have alternative options in hand. They can check loan options like loans against titles, FDs, loans against gold and other secured loan options to arrange the money needed to purchase a car.
Check the reconciliation of the car company with the lender
Before finalizing the car loan, find out from the car manufacturer if it has an exclusive relationship with lending institutions. Automakers and banks often team up to offer loans for specific car models at attractive interest rates and on favorable terms. Under such an arrangement, you can enjoy benefits such as lower interest rate, zero processing fees, faster auto loan processing, etc.
(The author is CEO, BankBazaar.com)