Are you looking to buy your dream car? With multiple options available now in the market, you might be tempted to invest in one. Coupled with that, there are also car loans that are now easily available. It would be important to keep the following in mind while buying a car.
- Credit Score: First, try to focus on your eligibility. To assess this, you could use calculators available on the websites of banks. Around 6 to 10 months prior to availing of a car loan, try to monitor your credit score. If you have a credit score of 750 and above, you could get a car loan at competitive interest rates. If your credit score is low, you could look to improve it.
- Comparison Shopping: It would be important to do your due diligence before deciding on a car loan. While you must approach your own bank because of familiarity, you must also approach other banks and lenders. You must be patient and compare deals with at least two to four loan providers. “Different banks offer different interest rate to the customers after evaluating their profile and repayment ability. Moreover, since there are two types of interest rates, floating and fixed, the rates differ from bank to bank. Remember a few points of difference in the interest rate can make a huge difference in the EMIs (equated monthly instalments) that you have to pay for your loan, so consider even the minute differences to find out the lowest one,” says Adhil Shetty, CEO of Bankbazaar.com, a financial services website.
- Loan Amount: It’s important to set a budget before visiting any showroom. The budget is not just the price of the car. It will also include registration costs, the insurance premium and the cost of car accessories. Sometimes, while deciding on the budget, people tend to forget these. Also, due to excitement and pressure from the salesperson, people finalise on a model/variant that’s not within their budget. Determine the amount (both down-payment and loan amount) based on your needs. Don’t get swayed and go overboard or cash flow could become a problem in the future. Experts say it’s wise to make as large a payment upfront as possible as that would minimise the loan burden.
- Repayment Tenure: It is important to consider the repayment tenure carefully before deciding on a car loan. While the bank officials might insist that longer repayment periods will lower the EMIs, you may end up paying more towards the interest cost. Consider your present income and expenditure, besides your upcoming monthly commitments during the loan tenure, before deciding on a suitable loan tenure and the amount.
- Pre-closure/foreclosure Penalty: While opting for a car loan, you must check from a bank if it charges a pre-closure penalty. Pre-closing a loan means clearing your loan amount before the specified tenure. This usually saves a decent amount of money that you would otherwise have to pay towards interest. A lot of borrowers use their bonuses or any windfall gains towards settling their loans. When you choose to pay a lump sum amount to the bank against the car loan before the actual repayment period, banks sometimes levy a pre-closure penalty on the remaining loan amount. “Some banks may have foreclosure charges on early loan closure, and some may charge a fee for making part payments. You need to check all these before you take a loan as these would have an impact on your total costs,” says Shetty.