Most of the time, car-buyers consume a lot of time deliberating about which car to purchase without giving much thought on how to actually finance it. Also, it’s easy to fall into the trap of signing a loan in a hurry without reading the fine print first.
Cars are expensive purchases, we all know that. It comes with other hidden costs too, such as car loan interest, road taxes, and even car insurance. For these reasons, you must take steps to maximize the benefit of your car loan and understand what you agree to before you take out auto leases contract.
Take your cue from the following.
Check the Interest Rates
The first thing you need to do prior to the car loan application is to compare the rates of interest of different banks, financial institutions, and other lending platforms. It’s the most crucial step as there are no standard rates for car loans in the market.
The interest rate may vary from floating to flat, and it also differs from different banks and lenders. Even a marginal difference of a few points in the interest can significantly affect the total amount you have to repay.
Evaluate Your Credit Score
Your credit score is one of the most critical criteria in sanctioning loans. It’s the lifeblood of every loan. Your credit score will be the yardstick of banks or lenders to gauge your loan repayment ability.
As such, if you have a less-than-desirable credit score, it could mean higher interest rates and less loan amount, or worse, your loan might get rejected. You better check the status of your credit score before applying for a car loan.
Loan From a Car Dealer or Bank Dealer?
Should you get a loan from a car dealer or bank dealer? This question is probably the most debated among car buyers.
Car dealers typically offer an in-house financing package and make themselves a one-stop-shop to tempt car buyers. It means you don’t have to go to different banks and inquire about their car loan rates. However, banks can give you more options, and you don’t really need to do a lot of legwork to get a better loan because of the availability of different car loan comparison sites.
The only drawback of getting a car loan from a bank is that it can be more hassle because not all banks have loan package for all types of cars. With that, make sure to check that the bank will give you the funding you need according to the car model you want to buy.
Complete Your Documents
Know that every bank and financial institution follow the KYC (Know Your Customer) rule for giving loans. They will verify your past credit record and plenty of papers for validation. Hence, you need to prepare and ready all of the necessary documents with you.
Some of the important documents you need to prepare are bank statements, proof of income, photo id proof, valid address proof, income tax return statements of past years, your credit card statement, NOC (No Objection Certificate) if you’ve just cleared your last loan and many more.
Service Tax
Imposing a service tax is a common practice for car loans and is something that you can’t question. But you can frequently ask about how frequently you need to pay for it. Most banks charge it on a yearly basis, while some as a one-time lump sum.
Charge for Deferred Payments
Sometimes car dealership comes with ‘no repayments for six months’ package. So check out the fine print in case you get such an offer as you might accrue interest on the loan during this time.
Another offer to look out for is zero percent finance. Make sure to know what is the interest rate after the promotional period.
Get Quotations
Make sure to get quotations from all the dealers of your desired car while applying for a car loan. Every car dealer ties up with a different bank; that’s why they quote different rates and other financial charges. Be sure to visit multiple dealers and get a quotation of their rates, including other charges.
Foreclosure Penalty
Whenever you take a loan from a bank, never forget to inquire about the foreclosure penalty. It’s something that most buyers aren’t aware of.
A bank will charge a foreclosure penalty on the remaining loan amount when you repay the loan in a lump sum well prior to the actual repayment period. Different banks charge different foreclosure rates too.
Insurance
As a condition of the final car loan settlement, you will need comprehensive car insurance when you take out a secured car loan. To get a great deal, compare different car dealers for the types of cars you want to buy before making a purchase.
Consider getting a car loan insurance if you’re not sure if your income protection might not be enough to cover the car loan payments or if you have income protection insurance at all. A loan termination insurance will cover the balance of your car loan if you’re not capable of paying for it.
Takeaway
With the help of the right preparation, buying a car that will complement your lifestyle is possible. You just need to arm yourself with the proper knowledge before purchasing a car to increase your likelihood of getting a great car deal. Additionally, if you enter a dealership, be realistic when it comes to your budget to evade seemingly good deals on new cars that you can’t afford.
