With the change in time, buying a car is no more an expensive affair, as it was once. The new-age consumers are smart and know how to take advantage of the car financing options. Moreover, since the banks and financial agencies are rolling out so many options for the car buyers, it has become easier for them to make an informed decision. However, to make the most out of your car loan, there are a few vital things that you must consider before taking the final call. Here are the things that you should look for when opting for a car loan:
Before you apply for a car loan, first look for your CIBIL score. This is a vital aspect of a car loan as on the basis of your score, the bank/lender will decide your eligibility as well as the interest rate of the loan. While a high CIBIL rating will enable you to get a low-interest rate loan, a poor score can result in higher interest rate and might even lead to rejection in certain cases. So, the moment you think about taking a car loan, check your credit score instantly to know your eligibility for the loan. The minimum credit score preferred by banks is 750 or more than that. However, that doesn’t mean you won’t be able to get a loan if you have a score below this limit. There are banks and agencies who lend car finance at a lesser score depending on the profile of the applicant. Get in touch with such lenders to know your chances.
The next important thing to look for is a low-interest rate loan as it decides the EMIs that a borrower has to repay across the loan tenure. Hence, before reaching any decision, first check and compare the rates offered by various banks to find the most affordable option. Though the process might feel tedious at times, this is necessary to do as there is no standard for car loan interest rates. Different banks offer different interest rate to the customers after evaluating their profile and repayment ability. Moreover, since there are two types of interest rates, floating and flat, the rates differ from bank to bank. Remember a few points of difference in the interest rate can make a huge difference in the EMIs that you have to pay for your loan, so consider even the minute differences to find out the lowest one.
When opting for a car loan, it is important to assess your capability of paying the EMIs on time before taking the plunge. Calculate all other ongoing EMIs for education, personal or home loans (if there is any) and then decide whether you can afford to pay the EMIs or not. If the affordability of the EMIs is not checked on time, it might result in default, debts, and finally repossession of the car. An affordable EMI amount will be one that will fit your monthly budget without overshooting it. In simpler words, you should only go for an EMI amount which you can easily pay off by your monthly income without putting any undue stress on your budget. To plan the monthly EMI properly, you can make use of the EMI calculators offered by the reliable third-party financial websites. Using these online tools, you can calculate the EMI on the basis of the interest rate and get to know the affordability of the loan.
Another major aspect of a car loan is the loan repayment period and this is why it is pivotal to consider the repayment period carefully while borrowing a loan, The bank officials might offer you long repayment periods with lower interest rates, but understand that this way you will not be paying less, rather you will end up paying much more as interest. Initially, you might feel 7 years is a good amount of time to repay your loan comfortably, but the total amount that you have to pay as interest during this entire period will be extremely high. Remember, the longer loan tenure you choose, the more you will have to pay as interest outgo. Moreover, sometimes banks levy higher interest rates for loans taken for longer tenures thus increasing the cost even more. So, without getting influenced by the savvy bank executives, opt for a lower loan repayment period to pay less amount in interest.
While opting for a car loan from any particular bank, you must check if it charges a pre-closure penalty. Pre-closing your loan means you have cleared your loan amount before the specified tenure and thus has saved a good amount of money that you would otherwise have to pay as interest. But when you pay a lump sum of money to the bank against the car loan before the actual repayment period, banks levy a pre-closure penalty on the remaining loan amount and if it happens it can dampen your happiness. Hence, before deciding on a bank, find out if the bank charges any penalty on pre-closure or foreclosure. Since the penalty rate is not the same for every bank, make sure to select the bank wisely. Consider banks which either doesn’t ask for any penalty or charges a very minimal amount.
Almost every bank charges a fixed amount to process the car loan application of a borrower. Even sometimes it is seen that, while some banks and agencies offer car loans at low-interest rates, they charge a high amount of processing while offering the loan. The processing fee varies from one bank to another and the borrower should ask if the bank is charging a processing fee or not. Generally, banks charge a fee on the loan amount and it somewhere ranges between Rs.2, 000 to Rs.5, 000. However, since banks charge 0.5% to 1% of the loan amount, if you take Rs.5 lakh for purchasing a car you might end up paying a huge amount of amount as processing fee. So, try to negotiate with the lender to save some amount on the fee. Sometimes during festival seasons and special offers, some banks waive off up to 100% of the processing charges. You can look out for such offers while applying for the loan.
Service tax is an aspect which most of the car loan borrowers are not aware of. This is a basic charge that the banks take from the borrowers against their service and this charge can’t be questioned or negotiated. But sometimes bank might ask you to pay the tax quite often and if you have already agreed to the bank’s terms and conditions you can’t say no to them. Also, while some banks charge service tax as a one-time amount, some other charge it annually. So, before agreeing to the bank’s term to pay service tax for the loan, ask how frequently you will need to pay the tax. Enter into an agreement if you agree with the terms.
Sometimes when you opt for a car loan, lenders try to convince you to take credit insurance as well as some other additional insurances to make some profit. Despite the fact that credit insurance is a very helpful tool to cover your loan payments, it is not a good idea to buy it from the car loan lender. Since they will get the insurances only from the banks and agencies whom they are affiliated with, you will not be able to get the best deal on the insurance premium. Hence, while opting for a car loan don’t get influenced by the insurance policies offered by the lender. Rather do a market research, compare and evaluate various policies and select the best deal for yourself. If you feel the need to consult an insurance agent, make sure to discuss with an agent who doesn’t have any affiliation with your credit lender.
This is one more essential thing to look out for when you are taking a car loan. An acceleration clause implies that the borrower must pay off the entire loan immediately in circumstances when he/she faults on the EMIs or the full payment. This clause can also activated if he borrower commits any intentional breaches or moves/sells the car without the lender's knowledge. Once the lender sends a notice to accelerate your car loan you have to pay the entire loan amount, failure to do which will lead to repossession of your car. This if happens can result in a huge financial stress for the borrower as he/she has to repay the full loan amount instantly to avoid legal proceedings. As such, it is crucial to check the loan agreement in detail before agreeing to it. Moreover, it is better to choose a lender who doesn't want to include any repossession clause in the loan agreement to avoid future hassles.
Every bank offers different car loan interest rates and other associated charges. Hence, it is extremely important for you to get a quotation from various banks and agencies before applying for a car loan from one specific lender. On the basis of their individual rules and criteria, every bank quote different rates and this is why you should always invite quotes from multiple banks and financial agencies before placing your loan request with anyone. This way you will come to know their rates along with other associated financial charges.
Don’t be in a hurry when you are availing a car loan. Rather be patient and look out for special offers and schemes to save some good amount of money. Most of the banks give special offers on car loans during the festival seasons or a certain period of a year. Take advantage of such offers which include waivers on processing fee and pre-closure penalty, 100% funding on the vehicle, low- interest rate, special gift vouchers, etc. Borrowers who have good credit score with a sound profile might even get customised deals on the car loan from the lenders. You might even turn lucky to get a 0% finance scheme on your car loan. So, don’t forget to check the offers and schemes before taking the final call.
Last but not the least, don’t forget to carefully check all the documents related to your car loan before finalising the deal. This is the only way to know if there are any hidden charges that the bank has levied on your loan. Moreover, there might be other terms and conditions that you mightn’t be comfortable with. Hence, the borrower must go through the loan agreement and all other associated documents minutely and cross-check every single point specified in the agreement before signing the papers. This will make you well-informed about the contract on one hand, and will also keep you prepared for any unexpected situation.
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