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Things to consider before opting for a car loan

Most of us dream of buying our own car, however, it is a huge investment. Nowadays, banks are offering attractive car loans to help you bring your dream car home. Also, it is convenient to pay the money back in instalments within a period that you choose. If you end up buying a car with a higher rate of interest, then you need to pay high monthly EMIs. The value of EMI not only depends on the interest but also on prices, values, features, and payment plans.

Applying for a loan nowadays has also become quite straightforward. You can apply for a loan just with a few clicks online. But before doing so, you need to follow some guidelines. You must be aware of the budget, loans, and lenders.

Some points to keep in mind before you consider taking a car loan

Pre-approvement from the lender

Pre-approvement from the lender guarantees that you have a loan that can cover the cost of the car. You can organise your finances ahead if the loan is pre-approved by the bank. It will help you select the car without having to worry about whether you can afford the monthly payment.

Finalisation of budget

Always keep an estimated budget for buying a car. You may get distracted by the salesman, but sticking to your estimated budget will help you choose a car that matches your requirements. If you have decided to invest in a vehicle, you must be aware of the thumb rule. The thumb rule states that you should not spend more than half of your annual income on a car.

Test drive

You can examine the features of a car by test driving it. You should not skip a test drive if you want to ensure you’re investing in a safe and comfortable ride. Whatever the salesperson tells you about the car and the information you gain from various websites is not enough. While test driving, you get to check the features and decide if it is a good fit for you.

Focus on total cost rather than monthly prices

Monthly instalments often have hidden charges such as taxes, dealership charges, delivery costs, etc. The monthly instalments might seem smaller in amount, but if you calculate the total amount, you’ll realise that you will pay a much larger amount. All the additional charges are kept secret until you ask about them. People get lured by the low-cost EMIs, without understanding their significance.

Compare the prices

A new car is a prized possession for most people. One must avail of the best prices and offers to get the best deal possible. Compare the prices of your dream car in different showrooms before deciding where to purchase from. One must confidently negotiate and not hesitate to back out from any impractical deal.

Decide to invest either in a new car or a pre-owned car

You need to decide whether you want a new or a pre-owned car right after finalising the budget. Generally, people get a pre-owned car as their first car. Once they get the hang of driving and are financially secure, they buy a new car. Even though you can get a used car within your budget, the maintenance cost is high as compared to a new one. So, it is essential to analyse the budget for your car loan properly before investing in a car. Also Read: How To Evaluate A Used Car?

Ignore the add-ons

The rustproof, rear camera, heated seats, etc., are some of the add-ons suggested by the salesperson to gain higher commission. These expensive add-ons are of no use; instead, they drain the car’s battery. It makes no sense to buy expensive add-ons for a new car.

Answers to some questions that might arise while taking a car loan

Owning a car has become quite accessible due to loans. You just need to pay a fraction of the total amount as a down payment. The remaining amount will have to be paid back over a fixed tenure. There are many benefits that a car loan offers to a buyer. However, you might have some questions in your mind regarding car loans. We have answered some of the frequently asked questions.

What is the final price you will be required to pay for the car?

Some lenders charge an extra amount for documentation, processing, etc. These additional charges sum up to a more considerable amount over the period in terms of EMIs. You should check with the dealer and calculate the overall price accordingly.

What are the charges included in the car loan?

A borrower has to pay extra charges on the car loan apart from the interest. It becomes your responsibility to ask while paying the debt and also while sanctioning the loan. You should choose your lender after comparing the additional charges levied by the banks. These hidden charges include documentation charges, registration collection charges, stamp duty, late payment charges, bonus charges, etc.

What is the interest rate for a car loan?

This is one of the most common questions a client asks regarding a car loan. It is necessary to ask about the interest while sanctioning the loan. Many banks offer low interest. If you have a prior relationship with the bank, then it is relatively easy to get a car loan at a lower interest rate. Also Read: What Is A Car Insurance?

What are the documents needed for a car loan?

Documentation plays a crucial role while sanctioning the loan. The documents you provide assure the bank that you can pay back the loan amount. Regardless of the credit score, the bank needs more assurance from the borrower that he/she is financially stable to pay off the debt easily. Identity proof, age proof, address proof, business ownership proof, income proof, and employment proof are the documents needed for a car loan.

Will the banks charge penalties if you prepay the loan?

It is not advised to pre-pay the loan even if you have surplus money in hand. Some lenders may charge you with a penalty or close the loan for early payments. If you have to close your loan early, then choose a lender who charges you with a minimum penalty so that you can save yourself from the hefty fine.

In a Nutshell

Not everyone can afford to pay full price in one go while buying a car. Many lenders offer you loans to help you realise your dream of owning a car. You can avoid unnecessary sacrifices if you plan and get to know everything about the lender you choose and the car you buy.

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