Buying a car has become a necessity these days. Gone are the times when a car could be afforded by only the rich class people. Today it has become quite easy to own a car, thanks to the financial institutions that offer car loans at reasonable rates. Most of the times people are so engrossed in the whole process of selecting the car of their choice and finding the best car deal that they forget to pay attention to the choice of car loan that they make. Here are 4 most common mistakes that people make while applying for a car loan. Avoid these mistakes so that you get the best car loan interest rates.
Improper budgeting– Like any other loan, car loan comes with the responsibility of paying a monthly EMI on time. You must do a proper budgeting of your finances to determine whether you can really afford the monthly EMI. Make sure you have money left not only for your monthly expenses and savings but also for the maintenance of the new vehicle that you bought. Failure to pay the EMI on time will be detrimental for your credit history.
Opting for a longer term– Some people focus only on the EMI amount, and go with the loan provider offering a lower EMI. They fail to realize that a smaller EMI means a longer loan term. Many banks offer a smaller EMI since it fit your budget, but charge a higher car loan interest rate for a longer duration. Moreover the longer the duration of the loan, the more is the interest component that you pay against the loan. So effectively you end up paying more if you go for a longer term loan. One must keep in mind that a car is a depreciating asset. One must try to pay off the car loan as soon as possible. So if affordability is not an issue, one must go for a shorter duration loan and save on interest costs. Use the EMI calculators to see how the interest payments vary with the change in duration of loan.
Entering into an agreement without proper research and evaluation of options- Before one chooses a car loan it is important to research and do one’s home work. Many a times people fail to evaluate the various options available in the market. They focus on finding the best car deal, but do not take time out to shop for the best car loan. Many people fail to read the loan agreement properly before signing the dotted line. Don’t just go with the first offer that you receive. Check all available options to see which one offers the best car loan interest rate. Use the EMI calculator to explore the various repayment schedules. Be clear with the various clauses of the loan before signing the agreement. Ask about any hidden charges or extra costs so that you are not in for any surprises later on. Clarify with the provider that there are no foreclosure or prepayment charges so that you can close the loan and save on interest cost whenever funds become available.
Not checking your credit report and score- Your credit score determines whether you will be approved for loans or not. Even the interest rates offered on the loans are based on your credit. If you fail to check your own credit report, you will just have to take the loan providers word and accept the interest rate that he offers. It is a good practice to be informed of your credit position before applying for a loan. If you have good credit you will have a greater bargaining power while settling on interest rates.
Another benefit of checking your credit report is that you will be able to uncover any erroneous information recorded therein and get it corrected before applying for the loan. Errors in the report can result in your paying a higher rate of interest than what you should.
A little budgeting, being aware of your credit position and evaluation of various alternatives is all it takes to select a good car loan provider. Avoid the above mistakes and you will be able to get the best deal on car loan.
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