If you are planning to buy a car by taking a car loan, you have made a good decision. As you may already be aware, car loans come with many benefits, the greatest one perhaps, is that you do not need to shell out a huge sum of money at once. Instead, you can repay the loan in equated monthly installments (EMIs) and save the cash for a raining day. Taking a car loan also helps you in building your credit score provided you repay your EMIs on time. A good credit score can help you to get loans with better interest rates along with other attractive deals.
Before making a car loan application, some of the things that we should do is - read about it on the internet, ask our friends if they have any idea about car loans, and find out about all the car options available in the market. While doing any of these, we may come across a lot of misconceptions about car loans that can instill some anxiety into our minds.
Hence, in the sections below, we shall discuss 5 of the most commonly held misconceptions about car loans:
You may have seen many lenders advertising about offering 100% finance to purchase a car which means you do not have to make any down payment. Do not get carried away by such advertisements as most car loans offer funding of only up to 90% of the car’s invoice value. This means that you will have to pay 10% as a down payment. Having said that, there may be some lenders who do offer 100% financing to buy a car but they are likely to charge you a higher interest rate.
Applying for a car loan through a dealer cannot guarantee you lower interest rates as interest rates depend on a lot of factors such as your credit score, your employment status, etc., and the dealer cannot influence any of these. Instead, you can negotiate with your existing lender to offer you lower interest rate on your car loan and they will be ready to honor your request if your credit score is healthy, you choose a longer repayment tenure, or opt for a loan for a smaller value.
You must have heard from many around you that you cannot get a car loan for buying a used car. This is untrue because many top lenders in the country do offer used car loans for purchasing a pre-owned vehicle. The interest rate on used car loans may range between 9.5% and 17% and funding of up to 90% of the car’s valuation can be availed. Used car loans can make it possible for you to own a luxury car at lower costs as pre-owned cars are relatively cheaper than the new ones.
While it is true to an extent that you need a good credit score (above 750) to get a car loan, the opposite is not entirely true as you can get a car loan despite your low credit score. However, you may be charged a slightly higher interest rate as lenders associate your low credit score with low repayment capacity. So, while you can get a car loan with a low credit score, a healthy credit score can fetch you lower interest rates, lower processing fees, etc.
Refinancing a car would mean you taking a new loan with better features such as low interest rate, to repay your existing car loan. This is usually done when you wish to reduce the burden of high EMIs or wish to extend the repayment tenure on your existing loan. While many may advise you not to go for refinancing on your car, doing so can help you save on the high interest you are paying on your existing car loan.
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