17 Jan Get a Great Deal: 5 Factors to Consider Before Taking Out a Car Loan
One of the most crucial financial decisions you may face in life is to buy a new car. It requires practical thinking to help you save money and other costs, such as road tax and car insurance. For these reasons, taking out a car loan can be an excellent option, especially if you don’t have enough cash on hand to buy a new car.
Also known as an auto loan, a car loan is a personal credit that you can use to buy a brand new vehicle, or even a quality used one. In return, you need to pay back in time the amount you borrowed from a lender. It includes a certain amount of interest, which you can pay every month.
Taking out a car loan can be an effective financing option you can use to buy your dream car. But before maximizing its benefits, you also need first to understand how this option works to get a good deal. Speaking of which, here are five factors to consider before taking out an auto loan.
The Interest Rates
One of the things you need to do before taking out a car loan application is to check the interest rates. You can also compare them to financial institutions, banks, and other lending institutions such as CreditNinja. Since the market isn’t offering standard rates for car loans, doing it can be the most crucial step to help you come up with the best choice.
The interest rate is the rate charged to the amount you borrowed from your lender. It may differ from different lenders and banks as well as vary from floating to flat. It’s also known as the annual percentage rate or APR because the lender usually expresses it as a percentage for one year.
Your auto loan’s interest rate can make a huge difference. It can significantly affect the price of the car and the total amount you have to repay from your lender. It will also add more interest for longer loans, so make sure to opt for a loan that’s payable in a shorter period. Doing so can help you get the best interest rate possible as well as saving hundreds or thousands of dollars on your car loan.
Your Credit Score and Credit Record
You must have a good credit history before you talk to the lenders and other financial institutions. They may rely on your credit scores and reports when it comes to determining loan interest terms and rates. With that, having a high credit score will help you qualify with the eligibility criteria set by the bank.
A credit score is also known as the lifeblood of every loan. The banks and lenders use it as a yardstick to determine the loan repayment ability of every borrower. It means that if you have a less desirable credit score, then you may get a high-interest rate with a low loan amount. The bank or a lender might also reject your loan request if you don’t have a good credit history.
Consider the Length of Term
Choosing a shorter length of term as possible is essential when you want to apply for a car loan. The shorter the period, the lower the interest you need to pay over the loan period. However, opting for a longer loan may increase the total amount of money that you need to pay as well as your responsibility to pay for a more extended period.
The lender will provide you the option to choose to pay your loan on a specific period. Your payment period may also vary with a loan tenor of one year to seven years. Additionally, opting for longer loan tenor means lower Equated Monthly Installment or EMI burden. However, choosing shorter loan tenor may lead to a higher EMI burden.
Processing Fees
Less is better when it comes to processing fees. The banks will include them on your payments when you try to request for a car loan. Choosing a bank that charges low processing fees will also help you save money. With that, it’s best to negotiate your processing fees with the bank to help you get a great car deal.
Sometimes, banks will offer loans with lower processing charges. You can look out for these offers to save a significant amount of money. Additionally, it’s best to remember that car loans are short tenor ones. With that, the impact of an interest rate will go down whenever the loan tenor goes down as well. It’s also crucial to focus on other charges than just focusing on your interest rate alone.
Get a Car Loan Insurance
Getting a comprehensive car loan insurance can be a condition for your final car loan settlement. It’s a way to help you effectively take out a more secured car loan. You can also compare different car dealers in the market for the brand of car you’d like to buy. It’s a way to get a great deal and get a cost-effective and high-quality vehicle.
Since most banks like to sell additional insurance with loans, then you can ask your bank to guide you with your insurance plan. Utilizing it will help cover your loan payments, especially if you don’t have income protection insurance at all.
However, you must remember that it isn’t a good idea to get insurance from your lender or from whom you’re borrowing a loan. If you aren’t capable of paying your car loan, you can also get a loan termination insurance to cover its amount balance. It’s a great way to prevent yourself from taking out a car loan that could create difficulties for you along the way.
Takeaway
Buying a cost-effective car that can complement your lifestyle can be possible with the right preparation. You need to arm yourself with proper knowledge about car loan financing, such as those stated above. Doing so can also help yourself avoid those seemingly good ones that you might not afford.
However, you also need to remember that purchasing a vehicle isn’t just a crucial financial decision. It’s also about a matter of convenience. Thus, maximizing the benefit of your car loan and understanding it before signing a contract will surely help you effectively get a great deal ahead.