Buying a car by taking a car loan is becoming common these days as a lot of people understand its benefits. Instead of paying a lump sum amount to buy a car, you can pay small amounts each month in the form of equated monthly instalments (EMIs) if you take a car loan and save your cash for a rainy day. The car loan application process has also become easier, quicker, and can be done at your convenience if you decide to do it online. People who prefer the traditional method can also visit the nearest branch of the lenders to apply for a loan.
Whatever route you take for a car loan application, the benefits offered by a car loan are manifold. Having said that, you also need to be wary and ask yourself the below-given questions before you take a car loan.
Before you apply for a car loan, make sure that you explore all the options available in the market. Check for the benefits, especially the interest rate, offered by various lenders on their car loans and compare them. Once you do that, you will be able to decide which one fits your requirements best. It is a good idea to check with your existing lender if they can offer you lower interest rates before you approach other lenders.
The first thing you should do before you apply for a car loan is to assess if you can afford to pay the EMIs each month. You can use the EMI Calculator tool to calculate the EMI amount and then see if you can fulfil your other monthly expenses after you have paid the EMI for your car loan. If you have other loans for which you are paying EMIs, it is recommended that you clear those first before applying for a car loan.
Deciding to prepay your car loan may be a good idea if your income has increased substantially and you wish to get rid of EMI payments that you make each month. However, many lenders will charge a penalty on loan foreclosure or prepayment and hence, you must check for these charges before you apply for a car loan. If the prepayment or foreclosure charges are high, your intention of saving up on the interest by foreclosing the loan may be dampened.
Making a higher down payment would mean that you will need to take a loan of a lower amount which will, in turn, save you on the interest. You may also be offered a lower interest rate by the lender as they know that your loan will be paid off quicker. Also, since you will be taking a loan of a lower amount, the risk associated with lending to you will be lower. So, if you have decided to buy a car by taking a car loan, it is recommended that you save a substantial amount and use it as a down payment.
Maintaining a new car is no child’s play. There are expenses involved and hence before you decide to buy a car, ask yourself if you can afford to spend on the maintenance of the car which will include repairs, regular servicing, replacement of parts, etc. The cost of maintenance of the car will also vary according to the car model you buy. If after evaluating the expenses of car maintenance, you feel that you can afford it, you can go ahead and apply for a car loan.
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