If you are someone who enjoys the freedom and convenience that comes with driving your own personal car, then it’s very important to buy one. While buying a luxurious car will no doubt give you some bragging rights or a great sense of pride, you must be prepared to take care of the financial obligations associated with it. This is where your application for a car loan would come in handy. If you currently live in the city and drive daily, then a car loan is necessary for maintaining your lifestyle.
Despite being one of the newer forms of debt, a car loan is often taken due to the convenience it offers. There is no need to save up for a car by buying it in installments over a couple of years; instead, you can avail of a car loan and get it overnight. However, herein is an informative guide to help you understand these factors that you must consider before initiating your car loan application:
5 things to consider before applying for a car loan
Before applying for a car loan, there are certain factors and steps that you must keep in mind. Some of them are given below for your reference:
Get Your Research Right: While everyone dreams of buying a new car, not everyone has a stable income that will qualify them to own one. If you are one such customer and are considering taking a car loan, it’s best if you study & understand the basics before proceeding further. By doing so, you will be in a better position to negotiate better rates and lower EMIs. There are various platforms like https://referloan.in/ where you can compare a wide range of car loans based on your income and repayment capacity.
Down Payment of the Car: A down payment comes into play when you buy a new car with a loan from a car financing company. Usually, the amount of the down payment mainly affects your EMI and determines the term of the loan. In order to find out the down payment percentage or the down payment amount, you have to determine the value of the car (also known as the price of the car) and the LTV ratio. The Loan To Value ratio, also known as the LTV ratio, is a proportion of the price of the car financed by a bank or NBFC and to be paid by you through your down payment. A high LTV ratio means you have to pay the minimum down payment.
Rate of Interest (ROI): The rate of interest on a car loan can significantly impact the amount of your monthly payment. It goes without saying that you should always consider the rate of interest when applying for a loan. While checking out the interest rate, you must also ensure that your loan repayments are affordable. You will find yourself in a debt trap if you can’t pay off your loan due to paying large amounts as interest.
Evaluate other charges: Applicants usually only focus on the interest rate of the loan and overlook the other charges that may come along when they opt for a car loan. You may have to pay fees in order to apply for a car loan. These charges include the Stamp Duty, Processing Fee, Registration Certificate (RC), Collection charges, Prepayment charges, and Late Payment Fee, among others. You must know that these charges differ from company to company, and if you want to save money, you need to find a good deal online.
Explore Prepayment Options: Opting for pre-payment on your Car Loan may sound counter-intuitive in the beginning, but there are several benefits attached to it. A prepayment is an option that enables the applicant to pay off the loan without serving the entire tenure. Whether you are opting for a new Car loan or upgrading your existing one, it is always worth checking with your lender to see if they provide prepayment deals. This allows you the flexibility of paying off the car loan before its tenure, which in turn saves you from paying high-interest rates. There will be penalties attached to prepayment but you can always discuss that with your car loan provider beforehand and sort out an amicable deal.
Summing It Up
In short, a car loan is an excellent option for individuals who need to buy a brand-new or used car. Banks and financial institutions compete to offer the best rates on car loans to keep their customers happy and satisfied. However, you still have to shop around for the best rate and lender to ensure that it is the right loan for your situation. Go through all these points before you apply for a loan. This will help ensure that you get the right financial support that you need. Doing this might just prevent you from getting into difficult situations which also helps you improve your credit rating as well.
FAQs
Generally, you can choose your car loan’s term from 1 year to 7 years. In some cases, banks or financial institutions may offer a term as long as 10 years.
The Cibil score you need to secure a car loan may vary from one lender to another. A credit score of 750 or above is considered good, which means that you can qualify for a comparatively better interest rate.
If you want to buy a new car but don’t have a good credit score or high credit utilization ratio, it makes sense to avoid taking on any new loans. Before you apply for another loan, try to improve your credit score by paying off what you owe and reducing your use of credit.
In addition to the interest rate on your car loan, there may be other charges, including a processing fee, registration certificate (RC), collection charges, prepayment charges, and late payment fees.