Things to Remember before Applying for a Car Loan

Auto financing

Buying a car is always an emotional decision, especially if it is the first car. Although this decision takes a worthwhile of time practical thinking and some basic knowledge will always be beneficial. Cars can be brought through cash if you have it reserved or financing is the second option. When there is a surge to buy a car follow your instinct but be smart. Car Loans can be beneficial but you may end up paying way above your budget through interests. We will provide you some basic guidelines of what you should remember when you are applying for a car loan.

  1. Compatibility with the burden of a Car Loan

The first step before applying a Car Loan is to understand if you can deal with pressure from a Loan. If you already managing a loan of different perspective it is likely to be a tough decision for you. The two criteria’s are EMI’s and Tenure. Higher Interest rates and long tenure would take a toll on your finances. Recommended to plan a budget according to the car you are purchasing. Tabulate your monthly income and expenses then take your step.

  1. Interest rates

Maintaining a good Credit score is vital and necessary as it gets while purchasing a car. Maintain good terms with your bank, and negotiate about interest rates. Negotiations can be easily processed if you are running an ongoing loan from your bank. The major part of Car Loans is you end up paying excess due to the depreciating value of cars. Try to keep a lower EMI to reduce the risk of scalping interests.

  1. Down Payments

If you have a good cash reserve and want to buy a car, you can always opt for a greater down payment to reduce the interests you pay. The lesser the down payment the higher is the EMI and the tenure. Practically it is not possible to keep a huge reserve of cash. Patience and proper knowledge is the key to better financing.

  1. EMI calculations

EMI calculations are the first step of planning your budget. Set a decent EMI to reduce the interest rates and tenure period. A minimum EMI can mean longer tenure which can be uncomfortable at the end. In addition, if the interest rates are high and there is a failed installment, following installments can become quite of a nuisance.

  1. Maintenance costs

Maintenance costs can be quite expensive. Your expenses do not end after you buy a car, but the major expenses add on to the surging fuel cost and service costs. The more expensive your car is, the higher is the maintenance cost and mods. Trustworthy automobile mechanics would be the best preference. In addition, maintenance costs with EMI will always be a burden.

  1. Foreclosure Penalty

Fore-closure Penalty is a celebration of clearing your debts before the tenure period and in addition, you save the successive interests. Fundamentally it may seem like a profit but there are additional penalties associated. Always read the documentation and follow the terms. Banks tend to add pre-closure penalties in their terms. Thus trying to be over smart may lead to shedding more amount of money. If you are liable to complete your tenure beforehand always check the details your bank provides.

  1. Considering of Buying Re-sale Car

Depending on the necessity you can opt for a second-hand car. India has one of the best re-sale markets with high-end cars available at lower cost. If the cars available in half prices then your chances of taking a Loan is much safe. The only drawback for resale is high maintenance costs and service costs. It is advised to do a thorough check of your car and also run a report to ensure the history of the car. Also, make a well-planned budget before following your instincts and make a surge buy. There may be cases where Car Loan negotiations may not be applicable for resale cars. Also, it is recommended to give low down payment for the latter.

These are 7 factors you must remember before applying for a Car Loan. Always be sincere and read out all the details and try to follow practical decisions rather than emotional ones.

About Jennifer Cribsly

I'm a former real estate broker who specialized in helping first time buyers be able to purchase a home. Now full time mom, part time real estate owner/investor.
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