Four things to keep in mind before choosing a car loan
With interest rates at their lowest and the holiday season kicking off, many of you may be considering buying the car of your dreams. Owning a car has become more convenient with readily available auto loans. Keeping the following in mind will make your car buying journey easier.
First of all, it’s important to get a feel for your eligibility. For this, you can use calculators available on the website of the banks.
Also watch your credit score. A credit score of 750 and above means that you can get a car loan at competitive interest rates. If your credit score is low, you can look to improve it if you check it early.
Do your due diligence before focusing on a loan. Loan offers from car dealerships may not be the cheapest.
“You should go to your bank because you already have a relationship with them, but you should also go to other banks. Also check the offers of finance companies, ”says Arijit Sen, Sebi-registered investment advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm.
Decide on The Amount of the loan
A budget should be established before visiting the showroom. Remember that the budget is not just the price of the car. The budget includes registration fees, insurance premiums and the cost of auto accessories.
It’s easy to get won over by the arrogant seller and finalize a model or variant beyond the pre-decided budget, but remember it will add to your overall cost.
“When you take out a car loan, you may feel like you can stretch your budget a bit more because you don’t have to pay all of the money up front. You have to be mindful of your needs. Depending on your needs (not your wants), you can determine how much (both down payment and loan amount) you want to allocate towards buying a car, ”says Sen.
Since IMEs will be added to your monthly budget, consider affordability. “In addition to your monthly household needs, lifestyle expenses, dependents and more, the EMI car loan will be added to your monthly expenses,” he says.
If the EMI exceeds your ability to pay, you will find yourself in a debt trap, so maximize the down payment to lower your EMI.
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The length of the loan plays a vital role when planning debt. A five year loan will mean lower monthly IMEs than a three year loan, but it will also mean that you will be paying a lot more money in interest.
Remember that in the future, your expenses may increase. “So, given your current income and expenses, you need to assess how you can manage future commitments over the life of the loan. By analyzing all of these aspects, you can decide on the appropriate loan amount and duration, ”says Sen.