Buying a car is a dream that nestles in the heart of many of us. For some, it is a luxury, for some, it is a dream that helps them to pursue their hobby of going on long exciting drives with friends and family and again for some, it is a basic necessity a utility element that helps them and their loved ones to live a comfortable life.
Buying a car comes with a considerable expense and happens to be a major investment. That is why people look for a favorable car loan to buy their own dream car. These days, with the help of the various car loans available in the market it is no longer a challenge for many of us. Car loans have enabled people to think beyond the unthinkable.
The types of cars they never imagined buying before are now could be found in their garages.
Why do Buyers Opt for a Car Loan?
Car loans are sums or amounts of money borrowed by a person willing to buy a car at the initial stage from a financier, where the financier takes care of the initial down payment and the buyer can take the care with himself. Later on, the person repays off the loan at an agreed rate of interest at a certain number of monthly installment payments of EMIs.
This is one of the most common practices followed all across the world. This has many positive points like the investments of the buyer is not touched, his credit history improves, without any need for collateral.
Important Things to Keep in Mind While Applying for a Car Loan
It is a fact that more than 90% of people who are looking to buying new or used cars avail of car loans for this purpose. These days, there are several types of car loans available in the market. This is further facilitated by an increasing number of banks in the market who has a heightened index of competition amongst themselves.
This is why car loans with attractive interest rates, given for a longer duration of time are available at a remarkable operative speed these days. Even then the following are the ten most important facts that you must bear in mind at the time of availing a car loan.
1. Interest Rates
This is the most important thing that you need to check at the time of availing of a car loan. Even a difference of few points can make a large difference for you in terms of the money that you need to pay back to the bank. To find out whether it is a flat or a floating rate of interest, compare & figures between different banks or NBFC’s. If you have a good score, then you can easily get the best car loan interest rates on both new and used car loans.
2. Credit Score
Always try to maintain a favorable credit score as it is one of the most important aspects which is checked by banks and other financial institutions at the time of giving out loans. A low credit score will mean either a high rate of interest or a low loan amount. A good CIBIL score is a must to get a good deal in the market, also you should know that a CIBIL score affects car loan eligibility.
These days the aspect of ‘know your customer’ is very important for all the banks and financial institutions. This is why you must have all the required documents at the time of availing of the loan. Documents like address proof, income proof, photo id proof, etc.
At the time of applying for a car loan be sure to take quotations from different dealers as they happen to tie up with different banks. So they can offer you different rates of financial charges. Be sure to check with at least five of them to understand the variety available.
5. Repayment Tenure
The repayment tenure is of utmost importance at the time of availing of a car loan. Although the bank executives and managers might try to allure you for a longer term of repayment with the reasoning of lower EMI amounts, however, the total amount paid at the end of the tenure will surprise you. So go for shorter repayment tenures.
6. EMI Calculation
The interest rate can be flat throughout the loan term or reduced balance interest rate. As the EMI calculations are more complex to do with a hand, you don’t need to just simply use the online EMI calculator that helps you to calculate how much you have to pay during each month for both types of interest with the complete summary of your loan. Also, give an account to the car loan EMI calculator that allows you to determine the equated monthly installment (EMI) of your car loan, graph between total principal and total interest paid with complete loan repayment amortization schedule.
7. Processing Fee
Banks also charge processing fees for giving out loans. This charge can be different at different banks, so please spare careful attention to this aspect.
8. Service Tax
Services taxes are a regular part of car loans, however, the interval at which it needs to be paid makes all the difference. Some of the banks make it a one-time payment, while some other banks impose taxes on each installment payment. In any case, you must have a clear idea of what you are paying as the service tax. If it is found on the calculation that the one-time payment equals the installment payments, you must make the decision.
9. Foreclosure Penalty
This is an amount of money that needs to be paid to the bank before the closing of the loan. This is an aspect about which most of the buyers or loan availed are unaware of at the time of taking the loan. Different banks have different rates of foreclosure amounts. This can make a difference in the amount of money that is being repaid to the bank. You should have a clear idea of the matter and some basic knowledge of how the calculations are made. It will keep you
10. Offers and Deals
These days as a mechanism to fight the market competition banks often floats several offers and deals so that they can attract more customers. This is one of the simplest ways through which you as a buyer and a person availing the loan can avail of better rates and deals of loans.
The above-mentioned points are but some of the basic elements that must be borne in mind at the time of applying for a car loan. These days, almost all nationalized and private banks as also NBFCs are offering car loans. They come with their respective terms and conditions. However, everyone needs to adhere to the Finance Ministry and RBI guidelines in this matter.