You want to buy a car but you are low on cash. So, what do you do? You apply for a car loan and make your car dream a reality.
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So, what is a Car Loan?
It is a personal loan whose proceeds are used for purchasing an automobile. It means that the lender will loan you the required cash to purchase a vehicle.
In return, you will have to pay back the lender the full amount of loan, plus the interest, usually in monthly payments. You would have to pay the lender until the amount owed is fully paid off.
So, if you are interested in taking a car loan, make sure you don’t make these following mistakes.
Not Comparing Loan or Financing Options
Before going to the car shop, consider pre-qualifying for a loan with your bank. This will allow you to know how much you are qualified to borrow. It will also give you an alternative offer to negotiate with.
Compare other financing and loan options as well. Compare the interest rate and terms that different lenders are offering. By comparing the financing options, you can save money in the total outgo of the loan.
Not Knowing your Credit Score
A high credit score will make it easier for you to get a car loan. It is important that you know your credit score before approaching the car dealer.
If you are not aware of your credit score, the dealer could establish loan terms and interest rates that might not work for you. Applying for a car loan without gauging your creditworthiness may result in the rejection of the loan application.
Not Comparing Prices on New Cars
Before you even apply for a car loan, you need to do your homework about which car you want to buy. Along with it, you need to see what deals different companies are offering on that car.
Compare prices on new cars and check different auto-guides to understand the car market. Once you track down a good deal, try to arrange affordable financing. Take your time and shop for the best car loan deal.
Check all the options to see who is offering you the best deal. Moreover, you can compare personal loan interest rates and choose the best interest rate and features that suit your application.
Keeping a Long Loan Tenure
A car is a depreciating asset. The value of a new car depreciates very soon. Therefore, choosing a longer tenure will work against you in 2 ways:
– The cost of borrowing will be higher because of the compound rate, and
– The value of the car will greatly depreciate in the market by the time you end up paying EMIs.
Choose the shortest term you are comfortable with to maximize loan benefits and minimize interest outflows.
Choosing the ‘No Down Payment’ Option
Tempted to go for the no down payment option? After all, it means that you can drive away your new car without having to pay a single rupee!
But, this is a gimmick that every car dealer tries just to lure the car shoppers. The ‘no down payment’ basically means ‘pay less now, and more later’.
Zero down payments mean you will be paying more on future EMIs resulting in a higher interest outflow. Moreover, there will be hidden charges and fees that you might forget to factor in.
You can consider taking a personal line of credit to make an immediate down payment when buying a car.
Buying a Lot of Add-Ons
You might be tempted to buy add-ons for the car such as car body covers, parking sensors, music system, etc. All these expenses along with the actual cost of the car will amount to a huge number.
Increasing the loan amount to add more accessories for your car would be very unwise. It surely wouldn’t be worth paying a high interest just to buy the accessories. You can buy these add-ons from the market at a cheaper price.
Before you sign those loan papers, ensure you read the fine print carefully. Be very sure about all the aspects of buying a car and understand everything you need to know about getting a car loan. Once you are aware of everything, you can choose the best possible loan that is available.
So, are you making the same mistakes before applying for a car loan?
You can express your views and suggestion in the comment box.
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Published on: June 12, 2019