scorecardresearchThinking of taking out a car loan? Analyze these 6 factors first

Thinking of taking out a car loan? Analyze these 6 factors first

Updated: 10 Sep 2022, 11:00 AM IST
TL;DR.

There are a few crucial factors that you must take into account before making the final decision if you want to get the most out of your car loan. We try to discuss all these major points in detail.

There are a few crucial factors that you must take into account before making the final decision if you want to get the most out of your car loan.

There are a few crucial factors that you must take into account before making the final decision if you want to get the most out of your car loan.

Owning a car is no longer a costly endeavor, thanks to the plethora of banks and financial organizations that offer car loans at reasonable rates. But before you visit the car dealer to bring your favourite model home, there are various points you should take into consideration,

Although it may be simpler to claim that loans can be obtained with the click of a button, this is not always the case. There are a few crucial factors that you must take into account before making the final decision if you want to get the most out of your car loan.

Let us try to decode these one by one.

Interest rates

Before applying for a car loan, compare the interest rates being given by several banks or financial organizations. Since market rates are not uniform, even a small variation of a few percentage points in the rate of interest might have a significant effect on the amount you would pay back the lender.

The interest rate listed on the bank or financial institution's website does not always ensure that each application will receive the same rate. Your credit score, ability to repay the loan, automobile type, and any other factors your lender may take into account will all affect the interest rate on your car loan.

Penalty for premature closure

You must determine whether a bank imposes a pre-closure penalty before choosing a car loan from them. By pre-closing your loan, you have paid off the full amount before the designated term and have saved a significant sum of money that you would have otherwise had to pay in interest.

However, some banks impose a pre-closure penalty on the remaining loan amount when you pay a lump sum of money to the bank in relation to the car loan before the actual repayment period.

Loan repayment period

The length of the loan repayment period is another important factor in a car loan, thus it is crucial to carefully evaluate this factor when applying for a loan. The bank employees may try to entice you with lengthy payback terms and cheap interest rates, but you should be aware that you will really end up paying considerably more in interest. Keep in mind that the longer the loan period you select, the higher the interest expense you will incur.

Processing charges

The processing charge is the next crucial element. For reviewing your loan application, lenders charge either a set charge or a percentage of the loan amount as processing fee. Many lenders with lower car loan rates typically charge a larger processing fee.

Therefore, before beginning the car loan approval procedure, confirm that your loan provider has a processing cost that is reasonable and comparable with that of other top lenders.

Credit score

Check your credit score first before applying for a vehicle loan. This is a crucial component of a vehicle loan since the bank or lender will determine your eligibility and the loan's interest rate based on your credit score.

While a good credit rating will help you qualify for a loan with a low interest rate, a low score might result in a higher interest rate and, in certain circumstances, even loan denial. So, the moment you consider getting a vehicle loan, check your credit score right away to find out if you qualify.

Monthly EMI payments

Before deciding on a vehicle loan, it's crucial to consider your capacity to make on-time EMI payments. Determine whether you can afford the EMIs by adding up all other current payments for other personal loans.

Failure to timely assess the affordability of the EMIs may lead to default, debt, and ultimately the repossession of the vehicle . Moreover, there are now several financial websites that provide simple EMI calculators that can assist you in organizing your monthly EMI.

In addition to the considerations mentioned above, practically every bank or lender that offers vehicle loans offers a variety of tempting offers and discounts. If you have a good credit history, you may even be able to get a special bargain and, in some situations, a car loan with 0% interest.

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First Published: 10 Sep 2022, 11:00 AM IST