One should be careful while choosing the lender for the car loan, as a right decision can save you a lot of money. We have explained here what you should keep in mind before taking a car loan.
Car Loan: Are you planning to buy a new car? If you have a good credit score then you can easily get a loan for a new car. Car loans play a vital role in arranging funds for a new vehicle. When you apply for a car loan, you make a down payment and the balance is paid by the banks. Thereafter, the borrower repays the car loan in installments along with interest. The loan amount can be decided based on your fund requirements, monthly income and credit score. The higher the downpayment you make at the time of buying a car, the lesser will be your EMI burden.
One should be careful while choosing the lender for the car loan, as a right decision can save you a lot of money. Let us know what things you should keep in mind before taking a car loan.
rate of interest
The interest rate on a car loan varies from 6.75% to 9% p.a. The car loan interest rate will depend on factors like your credit score, income, loan tenure, car category/model, down payment. If you are looking for a car loan at the lowest interest rate, you must compare all the car loan offers online. Lenders offer car loans with both floating and fixed-rate interest options.
Pay attention to your credit score
A good credit score can help you get a car loan at an attractive interest rate. Therefore, you should check your credit score before applying for a car loan. If your credit score is not good, then you should take necessary steps to improve it. You can improve your credit score by repaying your existing loan and reducing your credit utilization ratio. After improving your credit score, you can apply for the loan.
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It is important to decide the right loan tenure
A longer loan tenure can help you pay lower EMIs, but you will have to pay higher interest on your total loan amount. If you can pay a higher EMI, then you should opt for a shorter tenure. Generally, lenders allow up to 7 years to repay the car loan. The longer tenure option is better for those borrowers who do not want to pay more EMIs.
Other charges applicable on loan
Some lenders charge lower interest rates on car loans, but at the same time they may levy higher processing fees and other car loan related charges. Hence, it may happen that you may end up paying higher charges even if you opt for a lower interest rate. Therefore, along with the interest rate, it is important to pay attention to other charges also while taking a loan.
Repayment Flexibility
Do you want to repay the car loan before the car loan tenure? If yes, then you should be careful in this. If you pre-pay or pre-close your car loan, your lender may levy a prepayment penalty. While choosing your car loan lender, check in advance whether they levy any prepayment or pre-closure penalty.
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Read the fine print of the loan agreement carefully
Sometimes applying for a car loan may sound very tempting, but you may end up regretting it later. If you want to avoid such a situation, then read the fine print of the loan agreement carefully. How often will the lender change the interest rate? What are the charges applicable on your loan? Read all these information carefully so that you do not have to regret later.
car loan option
Sometimes the loan application of some people gets rejected. Such people need not worry as they may still have some other option. You can also opt for Loan Against Security, FD, Loan Against Gold, and other secured loan options to arrange money to buy a car.
(The author is CEO, BankBazaar.com)
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