Car Financing Mistakes To Avoid
Buying a car loan is not just about getting a loan for the lowest possible interest rate but overall nitty gritty that would make your life simpler. Before you apply for a car loan make sure you check the car loan eligibility criteria. Although you can get a car finance quite easily still you can commit some mistakes, if you are in a major hurry to get a car loan.
So, researching is must before getting into the procedure of a loan. You should closely look at the terms and conditions of the loan to safeguard yourself from higher interest rates. And most importantly to save yourself from getting cheated, research plays the most important role. Also, remember being a borrower, you have the power to negotiate. If your credit score is good and everything goes well, then you can negotiate on the interest rate and get a good deal out of your loan.
Let’s discuss the common mistakes you should avoid while taking a car loan:
# 1: Not Knowing Your Credit Score
A credit score is an important aspect that forms the basis of loan approval. As mentioned above, a high credit score gives you room to negotiate with the lenders on the rate of interest. If you have a high credit score that is between 750 to 900, then it would be easy for you to get a car loan and that too at a low rate of interest. So, it is vital that you check your credit score before you approach credit lenders. If you found your credit score low, then first work on it sincerely, build your credit score and then apply for a car loan, to avoid the higher interest rates. Some lenders even refuse to offer loan to a borrower whose credit score is below 700. Otherwise, you would be at mercy of the lenders. You can check your credit score online at free of cost, as there are a number of platforms available online to check your credit number. Keeping a track on your credit number is beneficial when it comes to borrowing a loan from any bank or NBFC.
# 2: Not having other finance option
You should not rely solely on 100% finance option offered by many banks and NBFCs. You should have other finance options, so that you can afford to pay the remaining amount leaving the ex-showroom price behind. So, before you apply for a car loan with your bank or any other NBFCs remember to arrange another mode of payment, which will be mostly be self-financing. The registration fee, insurance fee and down payment fee needs to be financed by you from your own savings. Sometimes, lenders suggest to apply for a separate personal loan or a top up loan to handle these financing. But, it won’t be a good idea. Also, check loan offers beforehand, so that you know in advance how much car loan interest rate you have to pay to lender and how much you are eligible to borrow from a lender.
# 3: Not negotiating on interest rates
A high credit score places you in a position to negotiate with the lenders on the rate of interest. The rate of interest depends upon several factors like credit score, down payment, principal amount, etc. If you are not aware of these factors, then you are more likely to be overcharged for a car loan by some greedy lenders. So, it is always advisable to do your homework before you to meet credit lenders.
# 4: Looking for A Long-Term Loan
While long term loan does have less EMIs, but the interest amount you would have to pay in total will be more as compared to short term loans. So, avoid the urge of low EMIs with long tenure and instead try to finish off your loan as early as possible as it would save some extra bucks. But do consider your financial capabilities whether you can afford the high EMIs in the short-term loan period or not, otherwise you will land up being a defaulter.
# 5: Getting Penalized for an Early Pay-Off
Do read the terms and conditions of the loan properly before signing the documents. Many banks and NBFCs charge some penalties, if you opt for paying off your loan before your loan tenure ends, that means foreclosure of loan. While some banks, on the other hand, do not have any prepayment charge that would save some money. So, it is better to look for banks and other credit lenders that do not penalize you for an early payoff.
# 6: Not checking online platforms
This is probably the biggest mistake you can commit by not checking car loan online. There are many lenders available online that offer loan at the best rate of interest. Also, getting a loan from online platforms is fairly easy as nowadays most of the formalities are done via online. It saves your time, and helps you to grab the best deal in the market. You might get a number of deals from different banks and lenders, but a little attention is necessary at that point of time. Don’t get too excited from any offer, because sometimes excitement can harm your pocket. Do proper research first, compare the deals and then take a decision.
# 7: Buying a lot of Unnecessary Services
Most of the lenders try to sell off some additional services to you like warranties, life insurance schemes which would pay off your loan in case you are disabled or die. Experts believe that although these services are beneficial, these services are often rolled into a loan financing which you should check with the lenders before signing the loan documents. So, these services have been designed for the benefit of the lenders and not for borrowers.
These were the mistakes which you should avoid while looking for a car loan. Otherwise, you will also land up in the same blunder basket like others.