Buying a car is a long-term investment, and most people take loans to get their work done.
However, proper research is essential to avoid ending financially low. These are the top five loan mistakes commonly noticed among people whether they apply for a car loan online or offline. Read through to get a clear overview before you settle for something permanently.
Skipping the Budget
Everyone will usually have a budget in mind for buying a car. However, a variety of circumstances force them into crossing this limit. For example, if you are looking for a specific car and its top-end variant comes at a little higher price. Anyone will be tempted to cross the budget. Moreover, the dealers will offer different interiors and fancy gadgets along with the car. These will also add to your budget.
Calculate EMIs using an online calculator as per budget. Whenever you feel like crossing the set limit, think of the EMIs that will get deducted from your account. Try not to increase your budget at any point unless there is no other choice.
Checking Loan Options
There are two ways for you to avail of a car loan. You can either choose financial institutions or opt for dealers. Each of these is unique, with differential pros and cons. Conduct proper research before finalizing a particular lender. You can compare car loan rates, interests, processing fees, loan tenure, and more offered by different lenders and pick the most suitable one.
Lenders will have their own set of regulations and policies. Consider them while researching and pick the right match as per your budget. You can even negotiate the interest rates in case you have an excellent credit history. The interest rates also depend on the down payment, loan tenure, etc. If you aren’t aware of these, your lender can overcharge you. So, it is always advised to compare car loan rates before beginning the loan process.
Ignoring the Down Payment
Though offers like ‘no down payment’ are quite tempting, they do come with their own set of side effects. Conduct proper research, and you’ll be shocked to understand the marketing tactics. Potential borrowers must always keep in mind that the more you take from a loan, the more you need to pay. Zero down payments can help save money now. But that’ll increase the overall amount in the near future.
The secret with “no down payment” offers is you’ll be generating more outstanding amounts from your lender. That will increase the amount of EMIs and the interests too. So, your lender is luring you into paying more than required. Moreover, there are hidden fees that people aren’t aware of, which adds to this equation. It is best to pay as much as you can towards the down payment so that the actual loan amount will be reasonable.
Prolonging the Loan Tenure
Longer tenures for loans will require you to pay less towards the EMIs. However, people usually forget this – interests and loan tenures are directly proportional to each other. As in, short-term loans require low interest when compared to the others. It is just the basics. Mostly, interest rates get calculated on the outstanding amount. So, the longer the outstanding amount stays, the more interest amount gets charged.
However, for short-term loans’ EMIs are pricier. Not everyone can afford them. A crude way to decide your loan tenure is to calculate the outstanding estimate using different online calculators. Also, calculate the EMIs using the same methods. Compare the results with your financial position and repayment capacity, and then decide the tenure. Remember that non-payment of EMIs will charge you with penalties.
Considering the Credit Scores
Credit score and credit report are some of the basic things on any lender’s checklist. They tell a lot about the applicant’s creditworthiness and past payment history. Relevant information regarding loans, bill payments, and other successful transactions appear on the credit report. No lender will skip verifying the applicant’s credit report before sanctioning the loan.
Lenders will check for loan repaying capability and monitor the previous payments. Your credit score and credit report reflect these details precisely. Higher credit scores and a consistent credit report indicate financial stability. On the contrary, a lower credit score and low-performing credit history are likely to nullify your chances of availing of a car loan. Either you apply for a car loan online or offline, these details cannot be skipped. So, be very sure of this information to avoid unnecessary hassles.
Proper research will help to avoid greedy lenders and pay more than the required amount. That way, you can fulfil your dream while saving money. Try to gather as much information as you can, and have a clear idea of the entire loan process before applying for it.
Also Read: 10 Easy Ways to Pay Off Debt