Most people look into a car loan rather than handing out cash, to pay for the vehicle, whether the vehicle is new or used. As something that accumulates interest over a period of time, it is important to be prepared before taking out a car loan. Here are five things to remember before you go in for a car loan.
- Shop around for the best interest rate. Compare the rates of interest offered by various banks or financial institutions before actually getting a car loan. Since there are no standard rates in the market, even a slight difference of a few points in the rate of interest could play a huge impact on the amount that you have to repay the lender. The rate of interest differs from floating to flat and varies from lender to lender. Obtain quotations from different dealers of the desired vehicle. Every car dealer has a tie-up with different lender and hence you might receive various quotes on interest rates and other charges. This can help you in evaluating the deals available while helping you the best deal for your car.
- Accurate and complete documentation. Every lending institution follows the KYC (Know Your Customer) norms for granting loans. There is a certain set of documentation that needs to be completed and verified along with your credit record to fulfil the approval of a car loan. Prior to shopping for a car, it can help to get a pre-approved car loan car financing officer from the lender of choice. This guarantees faster processing of the car loan but most importantly, a pre-approved car loan also works as an additional leverage while negotiating with the car dealer. You will be in a better position to bargain for more add-ons or fewer fees while closing the deal.
- Choosing loan repayment tenure wisely. The most important part of a car loan is the loan repayment terms. Some lending executives may influence you to opt for a particular loan that may appear appealing to you. For instance, you might be quoted a smaller EMI amount for a seven-year loan period. But if you calculate the total repayment in seven years you may be in for a rude shock. Hence it is prudent to select the minimum loan repayment tenure that can help you to save a lot of money in the long run.
- Calculate your loan EMI, processing fees, and service tax and foreclosure penalties. Fortunately, these days a number of financial websites offer easy EMI calculators that can help you to plan your monthly EMI based on the interest rate, thus helping to decide the best interested rate and loan for your car. Also, look out for processing fees as various lenders charge different fees and hence a comparison of various lending options can help you make an informed decision. Similarly, you may also have to look into service tax, on whether it needs to be paid as a one-time lump sum fee or to be paid on a yearly basis. Another important factor to look into is foreclosure penalties. Most buyers are unaware of the foreclosure clause and since various lending institutions have different foreclosure rates it is important to choose your lending institution wisely.
- Scrutinize for schemes and offers. Almost every bank or lender that offers car loans provides a number of attractive offers and deals. Armed with a sound credit profile, you could even bag a customized deal and in some cases you could also obtain a 0% finance scheme on your car loan amount.
It is important to be aware of the various factors that can impact your chance of securing a car loan. Seek the help of a loan official or an authorized car dealer for advice while at the same time researching thoroughly on the various options at hand before you.