Getting a car loan is quick and simple but getting the best deal is not that straightforward.
While using a car loan calculator is a great idea, there are several other factors to keep in mind.
Key Factors to Examine When Looking for a Car Loan
Read below the factors to consider when applying for a car loan. Follow them, and you are sure to land with a great deal.
1. Credit Score
Check your credit score before you begin the application process. This score plays a crucial role in deciding if you qualify for a car loan. It also determines the APR or the annual percentage rate for the loan.
Check your credit score a few months before to see if you can do something about improving it if it’s below the expected limits. Even a slight change in your score can save a lot of money.
2. Down Payment
It pays to save some money before the car is purchased as a down payment to the lender. Different lenders have varied downpayment rates which they charge to lower their risk.
While 100% financing options are also available, it comes with a higher rate of interest. Putting down some money every month to pay as an advance for the car purchase is a great idea to save on loan interest.
The car loan term is the number of months or years that you agree with the lender to repay the loan. A longer-term equates to low monthly payments.
However, the total amount you will pay can be higher if you opt for higher loan tenure. Work out the math to figure out an affordable payment plan that meets your financial situation and factor it when applying for a car loan.
4. Prepayment Penalty
Early payments usually draw a penalty. This is because the lender earns lower interest if you end up paying the loan amount before the loan tenure.
However, it does work for you to pay off the loan amount early as it saves you on the interest payable.
Thus, it is vital that you check the prepayment clauses and factor them in before finalizing on a lender.
5. EMI Affordability
While it is tempting to own the latest and the most expensive car, it may not be a feasible option for all. Car loans are readily available but pushing your limits is indeed not a smart idea. To calculate the EMI amount that you can afford, decide on the principal and the tenure.
A great way to get it right is to use the car loan calculator available online.
It shows the EMI amount based on the keyed in principal, interest rate, and loan tenure to calculate your monthly budget without any errors.
6. Processing Fee
Banks charge you a processing fee to approve the car loan. This fee differs from one lender to another. It is imperative that you compare various lenders and then choose the best one.
Buying a car is an easy affair, and with several car financing options readily available, it pays to play smart and choose the best.
So, follow the factors listed above and be informed before you go ahead and sign below the dotted line.