Introduction
You have decided to take out a loan for your dream car, but the moment you set out for the journey, you would have realized that financing a car loan is not as easy as it seems with a lot of money involved in the exchange with thousands of car finance options available along side. However, that is trivial, considering that there are several agencies and third parties agents willing to do the research and paperwork for you in no time without wasting resources and energy on commuting from bank to bank in search of a loan suitable for your requirements.
Trusting a middleman with such a responsibility is difficult given the history of scams and fraud several industry experts perform to bid their experience in looting their customers. Therefore, it is vital to know your basics if not everything to set foot upfront without having to worry about loan sharks.
In this blog, let’s check out our top 10 things to consider when taking out a loan for your car.
Can I Handle The Burden Of A Car Loan?
Employment stability is a deciding factor when taking a loan on a car. Whether you are a salaried, self-employed, or business owner, you are still going to have to pay EMIs on time however flexible and attractive they may be. Hence, before applying for a loan it is important to know whether your current financial position will support the necessity of taking a loan. Consider computing your existing debts and monthly expenses against your income to avoid emptying your savings on the loans.
What Are The Current Competitive Market Rates?
Interest rates are subject to market conditions, hence ever-changing. With several banks, NBFCs, Credit unions, and Private financiers offering car loans, the choices (car finance options) are unlimited. Each lender will be vying and competing against each other to attract your attention with their attractive policies betting on their capabilities of providing the best car loan in the market. Ranging from 6.90% to 25%, interest rates soar the skies depending on the financier, and several other factors such as the make and model of the car, employment stability, credit score, repayment ability, creditworthiness, and even your previous relationship with the lender.
Therefore, comparing prices, deals, and offers from various lenders with one another is important when negotiating rates with the creditor. You could benefit from the lowest interest rates available if you know how to play those cards right.
Am I Eligible For The Loan?
Let us not forget the eligibility when taking a car loan, let alone, the best car loan. This is one of the mandatory key factors for taking a car loan. A person being ineligible for a car loan, is considered almost impossible to convince any financial institution to fund their dream, let alone when dealing with such a huge sum. Eligibility requirements for a financier may differ from bank to bank, therefore check with your bank or an agent for what loan amount you are eligible for.
What Is My Credit Score?
If you have never had credit, you might need one to be eligible for the loan. Most banks do not offer a loan for a person with no credit history. This is because the bank may fail to judge the individual’s repayment capabilities and trustworthiness if he/she has failed to maintain credit records in the past. Although not all banks require their customers to have a credit history, zero, poor, or excellent, your interest rates may vary depending on your credit score and its worthiness.
A credit score of 750 or above is considered an excellent score and is likely to attract creditors offering lower interest rates and high funding on your loan. Therefore, it is essential to know your credit or CIBIL score before applying for a loan to negotiate deals with your lenders. However, customers with bad credit may find a suitable guarantor to avail of the same benefit if he may want a fair deal with the lenders.
Do I Have The Appropriate Documents Required For The Loan?
With financial markets digitized, minimal documentation has become a trend amongst financiers. There is no need to commute between banks or agents to get your documents approved. However, the banks may ask you for certain documents such as identity proofs, address proofs, income proofs, and a few other vehicle-related certificates to process the car loan. This is a mandatory cross-verification process to attest the applicant’s authenticity and prevent fraudsters from exploiting the financial services.
It is equally important for the creditor and the borrower to feel comfortable and at ease during the loan process. Hence, several banks may provide their customers with a frictionless transaction requiring them to go through steps; as few as possible to sanction the loan.
How Much Down Payment Can I Pay?
Financially speaking, this is the most important part of a car loan. Though 100% financing and zero down payments are entirely possible, you would want to reconsider your options when demanding zero down payments. Zero down payment does not mean that you will skip paying the loan, but a 100% finance would only add a few more months or even years to your loan, thus requiring you to pay the loan for longer periods and higher EMIs if you couldn’t afford part payments or pre-close a loan.
Therefore to attract the lowest car loan interest rate, if you have savings left in your bank to afford even a 20% down payment, several banks are more than happy to offer lower interest rates on your loan with flexible tenors and EMIs. Even if this is not mandatory, you will have to bite the bullet and carry on if you wish to escape the future burden on your loan.
What Are The Charges & Penalties Applicable To My Loan?
Your loan is not just the interest rates over the principal amount. With a car loan, you will also be paying several taxes, fees, and penalties; if needed, such as processing fees, part payment fees, foreclosure fees, GST, etc. Even more, penalties such as late payments, penal interests, pre-closure, etc may charge a heavy toll on the existing loan. Therefore, sit with your financiers to discuss service taxes, fees, and penalties to stay ahead of your game.
Remember that a lender is not just about lower interest rates. If a lender is offering you a lower interest rate, he may compensate for their loss by charging more on fees. However, being aware of this will ensure you wouldn’t dent your savings on paying those pesky charges.
What Are The Terms And Conditions Of The Lender?
Terms and conditions are boring. At least many people skip this part because they do not have the time or patience to read those lengthy documents. This means you are giving your lender an upper hand on your finances. Those several clauses will tie you down eventually if you are unaware of the conditions applied to your car loan before signing the application. To avoid legal proceedings and financial stress, you will want to take the time to read the document thoroughly and even may ask your lenders the questions you may have regarding your legal rights.
It is hence crucial to thoroughly read the car loan agreement or contract before signing the document. Moreover, it is advisable to choose a lender or financier who does not include a repossession clause in the T&C to avoid legal problems in the future.
Can I Afford The Insurance Coverage?
You need to be sure that you have sufficient insurance coverage for your car. Some financiers will require that you purchase an insurance policy when you buy a car from them to assert security on the vehicle if it may be stolen or damaged before the maturity of the car loan. Therefore, research your options for insurance and coverage to find the best policy on your car loan.
If you do not have the time to conduct market research, appoint a third-party agent who is not affiliated with the creditor to compare and evaluate the best deals on the policies that may benefit you from getting a good price on the insurance premium.
It is usually not advisable to take a policy from the lender you are taking the loan with. However, they may try to make a sales pitch on the loan, but doing your research will ensure you a cost-effective car experience that will actually fit your monthly budget.
Do I Need To Contact A Third Party Agent?
Contacting a third-party agent will entirely depend on you. If you have experience in the market or have time to do market research you may well alone be enough. However, third-party agents will help you make the process smooth and easier from getting you the best deals on cars to processing the documents with a minimal fee. You just need to sit and watch the funds unfold and ask your agents any questions you have and have them do the bid for you.
These agents with their connections can get you the offers that you may not get from direct financing. Therefore it is highly advisable to contact a third-party agent if you can to get the work done with minimal effort and high results. However, the choice is yours.
Points To Consider
Pre-Approved Car Loan Process
Final Word
Smart decisions are sound investments. A car on top of a wish list should be treated with extra care. Therefore paying your loan should also pay off your dreams simultaneously without having to pay a lot of money on fees or additional charges that may put you under a financial shock in the long term.
Now that you know the 10 things you may benefit from knowing before applying for a loan, contact your banker or a marketplace to get your loan sanctioned and drive away your happiness on the road.
If you are still not sure how, to find the best car loan in the market with lowest car loan interest rate and over 25+ car finance options, give us a call at Loanz360 and schedule a meeting with our representative, who will take you through the process of buying and financing a loan, along with comparing the market rates and finding the best option that fits your monthly budgets without breaking a bank. We prefer you check out more options and offers here and let the quality speak for you.
