Buying a car is a tough financial decision for one and all. And there is only one factor that leads to making this decision difficult. It is the car that one wants to own. Just like owning a house, the car ownership for Indians is a matter of pride and most of the times the decision is rested on the emotions rather than logic. Most of the buyers tend to buy a higher version or a more expensive car than probably they would have otherwise bought had they weighed the reasons to buy it. Moreover, easy access to loans for this purpose has made the buyers more casual towards selecting the make and model of the vehicle.
Following are the five most important factors to consider before one actually signs up for that car loan. These may prima facie seem to be the ones that would impact the decision on the car that one would buy but fact remains that the car itself is going to result in the outflow of the equated monthly installments. So go ahead and deliberate on these.
Have you identified the need for which you wish to buy the car?
People may not realize but the usage of vehicle should be one of the prime considerations before deciding on the car. Since two individuals can have different purpose and usage of car, the decision would also differ. In case one needs the car to drive to office through heavy traffic, then buying a high end car may not be the right decision. The parking space at office or residence will also impact the decision. On the other hand if one is looking at using the car only for family commute in the evenings then a luxurious or a higher version may be feasible. Similarly, if the vehicle is to get used for long drives over weekends, buying a SUV may be a better option. So before you decide on which car to buy and sign for the loan, check as to where would it actually get used.
Is a new car essential for your need?
Buying a new vehicle is indeed a preferred option but then today the manufacturers themselves sell used cars. These vehicles are the ones that are checked, certified and sold under warranty by them. These are also available at the dealerships for one’s inspection. In case the car is to be used for office and has to endure heavy traffic, buying a pre-owned car may be an option to evaluate. This can lead to huge saving and would lower down the monthly commitment towards the repayment.
How much of down payment can you afford?
While the car manufacturers today tie up with various lenders and the possibility of 100% finance being available can sound very exciting while evaluating the options, one should not forget that a higher loan amount would result into higher EMI being paid. A higher down payment would result in a lower loan amount and thus a lower EMI.
Will the EMI fit into your scheme of financial planning?
Before one signs on the loan agreement, it is prudent to take a step back and thing through if the pressure of servicing the installment every month fits into the scheme of financial objective. Today the loans are available for longer terms as well and one may not realize that the longer period of loan will only result into a higher interest cost of the loan. Also, one should negotiate the costs and interest with the lenders available at the dealership. Check out on all the options on lenders. You may just figure out that one is offering better terms than other. Say you weigh and figure out that HDFC car loan turns out to be cheaper than the others.
Have you identified the associated costs?
One thing that one usually misses factoring in decision is the associated cost of the vehicle. It is not just the one time purchase cost, but there are so many allied outlay that one would need to budget for. Insurance, maintenance and mileage are three such costs that can grossly impact the regular expenses. A higher version would directly impact these costs. Apart from these easy availability of spare parts/road side assistance in remote areas etc. can also inflate the cost of vehicle maintenance.
While one evaluates the above considerations, one must obtain the credit report and check if he is suffering from a low CIBIL score since this can also grossly impact the interest being levied on the loan.
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