Owning a car has become a necessity rather than a luxury. Thanks to the numerous car financing options, buying a car is no more an expensive affair, as it once was. Purchasing a car on a finance scheme gives buyers the liberty of not having to invest a large chunk of their savings in a single investment. The new-age consumers are smart and know how to take advantage of the various options for car buyers, rolled out by banks and financial agencies.
Things to look out for before applying for a car loan.
Credit Score
Your credit score plays a key role in deciding your eligibility as well rate of interest on the loan. It is, therefore important to check your credit score before applying for a loan. A higher credit score, preferably 750 or above, can help you get a car loan at an attractive rate of interest rate. Whereas a poor score results in higher interest charged or even rejection of the application. So, before applying for a car loan, you must check your credit score independently and if it is not up to the mark, you need to take corrective actions to improve your score.
Rate of interest
One of the most important factors to consider before applying for a car loan from a particular bank, is the rate of interest, as it can decide your instalment amount and the total amount you will be paying above your borrowed sum at the end of the loan tenure. Hence, before reaching any decision, first check and compare the rates offered by various banks, to find the most affordable option. The factors that decide the interest on a car loan include your credit score, income, loan tenure, car category/model, down payment, etc. Lenders provide car loans with both floating and fixed-rate interest options. If market trends point to rising interest rates, you can opt for a fixed-rate loan.
Loan Tenure:
Another major aspect of a car loan is the loan repayment period. While a longer tenure seems to be a reasonable option, remember that it comes at the cost of higher interest payment. If you are comfortable paying higher EMIs, you should opt for a shorter tenure. Longer tenure suits borrowers who find it challenging to repay higher EMIs.
Pre-closure/ Foreclosure Penalty:
An important factor to consider when opting for a car loan from any particular bank, is whether it charges a pre closure penalty. Pre-closing your loan means you have cleared your loan amount before the specified tenure. While this helps you save interest, some lenders charge a foreclosure penalty. Consider a lender/bank that doesn’t charge this penalty or has very nominal foreclosure charges.
Other charges
Bank loans come with other charges like processing fees and late payment fees. These charges, can impact the overall cost of your car loan. It is advisable to choose lenders who levy minimum charges along with a lower interest rate.
Keep these aspects in mind before zeroing in on a finance scheme. Also, a long-standing relationship with a bank can go a long way in helping you get a finance scheme that suits your needs and requires minimum documentation.
Credit Triangle is a one-stop solution for all your credit and finance needs. We help you with credit health management, repair and improvement.