Getting a new car is a big step. So, if you are thinking to get one, then you should plan judiciously. First, you need to save some amount for the down-payment, and then you can go for a loan on the remaining amount. Here are some points to keep in mind before you take an automobile loan. For all the information regarding vehicle loans, consult with the experts at Liberty Lending.
A car loan EMI should fit your monthly budget
Before opting for a car loan, you should make sure it does not exceed your budget; otherwise, you won’t be able to keep up with the monthly EMIs. You should also keep in mind the other EMIs you might have taken for home loans, education loans, etc. If the cost of EMI of your dream car does not fit your salary, it would be wise to go for something cheaper.
Take the EMI for a shorter duration and in a lower amount
Paying EMIs for shorter period always saves you from paying a higher interest. If you borrow for a longer duration to fit your monthly budget, you will probably end up in paying more than the car deserved. But on the other hand, shorter loan term also means a higher EMI amount. Along with the loan term, what you should keep in mind is the amount you are paying for the down-payment.
If you can manage to pay the higher amount, then the burden will be less while paying the EMIs. Just know that irrespective of loan amount or loan term, the cost of the loan is going to be the same. It’s the total interest amount that hikes up with the loan amount and term. You can get these car loans with loan tenure, that usually ranges from 1 to 7 years. So, low loan amount and shorter loan tenure are what you need to target for.
CIBIL score is what you need to check before taking the loan
Make sure that you check your CIBIL score before taking the car loan. A higher CIBIL score can get you a loan sanctioned easily with lower interest rate whereas a poor score can put you through the trouble. Before a bank sanctions you a loan they check your creditworthiness by your CIBIL score.
Since car loan is a personal loan, the bank needs to be assured that you can repay the borrowed amount within the appropriate time. So, if you have a poor score, your application for the loan might also get rejected. Therefore, you must always maintain a score in the range of 750 to 900 to be eligible for easy car loans or any other personal loans. You can use the CIBIL website to get your CIBIL report. So, don’t forget to check it to before you apply for the loan.
Check for lesser processing fee
Other than interest rates, the banks apply additional charges to the loans and processing fee is one such charge. The processing fee depends on the amount of credit you have taken. E.g., if you buy a sedan which is usually expensive than a hatchback, then the processing fees are also higher. But this amount is negotiable with the lender or the financial institution. Banks also provide special offers during festive seasons where they waive off these charges. So, you can avail that offer to reduce your cost.
Also, you can have a situation where two banks, one with an interest rate of 11% don’t charge you any processing fees, but the one with 10.5% does. In such cases, you should calculate which one is costing you more before going for the more obvious 10.5%. Since car loans are short term loans, the interest rate impact is low. So always check for the additional charges that are applicable along with the interest rates.
Prepayment charges are something you should consider
Keeping a car loan hanging would be very foolish as the car’s value depreciates with years. So, you might want to remove your headache by paying the loans early either to reduce the amount you had to pay as interest for the following months or so that you can invest in another personal loan. But it’s not that easy.
Banks charge a prepayment penalty if you wish to prepay your loan before the tenure of your loan ends. These charges vary from one bank to another. It also depends on the time duration within which you want to repay. So, it would be wise enough to search online for various financial institutions and banks which provides low prepayment penalty if you wish to pay a loan before time.
Shop around for offers from car dealers and manufacturers
Car dealers usually have tie-ins with various financial institutions that offer customers attractive and exciting rates. There are different Non-Banking Finance Companies or the NBFCs that you can access for an easy payment car loan plan.
Here is a money saving tip for you in case you have already checked out various financing options, and you know the dealer insurance is going to cost you more. If you make your demands, the dealer will allow you to go with a lending institution of your choice.
So, in order to get a car loan, firstly you should check your CIBIL report and make sure that you have a decent score to get hassle-free loans from the bank. Secondly, while opting for a new car, try making the down payment larger so that the loan amount is low. Remember, lower the loan amount lower will be the rate of interest. Also make sure that you don’t extend the loan tenor for long, even though EMIs will be of a smaller amount, but you will have to pay more as interest for every month you extend the loan for.
Don’t forget to check for the additional charges and the pre-penalty charges along with the interest rates. So, if you are planning to buy a car, don’t just hurry on with the choosing and buying but take a hard look at all the financing options to get the right deal for your needs.