Despite being cautious about car financing, most people still end up regretting their financing decision. Read this before you get yourself a Car Loan.
For most of us, a car is a big investment. It is a major life decision that requires a lot of effort in terms of research, budgeting, financing and so on. While each of these factors is important, choosing the right financing deal or getting the right Car Loan should take priority if you don’t want to end up paying more than you actually can afford.
However, despite being cautious about financing, most people still end up regretting their financing decision. So, if you’re planning to get a Car Loan and don’t want to end up regretting your decision later, then we suggest you read this before you make the big decision.
Listed below are five common mistakes that most people make when choosing a Car Loan. Ignore these and it could cost you a lot!
Additional Reading: Car Loan: Top 5 Frequently Answered Questions
Ever heard of Fixed Obligation to Income Ratio (FOIR) and Credit Score?
These two terms are extremely important to lenders since they help them gauge your creditworthiness for the loan. First and foremost, lenders will pull your credit report from Credit Bureaus to check your Credit Score and credit payment history. If and only if your score is above an acceptable level and you’ve had a clean history, will you qualify for the loan.
Post checking your Credit Score, lenders will next check your FOIR. FOIR calculation takes into consideration your monthly income, present liabilities, loan amount requested and your repayment ability. The lender may choose to not grant you the auto loan if you don’t have enough disposable income left after catering to your present liabilities.
So, we suggest that you first check your Credit Score and FOIR before you apply for a Car Loan. Too many applications, especially because you’ve been denied, doesn’t bode well with your credit profile.
Have you compared offers from different lenders?
Not comparing offers across lenders is a common mistake that most applicants make. There are two ways to get financing for a car – you can either get in touch with a financial institution or you can apply through a dealer.
Whichever you are going for, make sure you look at different deals before picking one. Just like any other loan, different lenders will offer different interest rates and other features. Pick an offer that aligns with your budget and minimises your total money outgo.
Additional Reading: Drive Away With These Instant Car Loans
Long tenure? No-no!
The value of a new car starts to depreciate the moment you drive it out of the showroom. So, although opting for a long tenure on your Car Loan may seem like a viable option at the time of purchase, it isn’t really a smart move if you think ahead.
Of course, while your EMIs will be lower, you’ll be paying a lot more than you borrowed because of the additional interest. Plus, since cars are depreciating assets, your vehicle’s selling price would have dipped a great extent by the time you’re done paying off the loan dues.
What about down payment?
Zero down payment offers are attractive. But getting 100% financing for your car isn’t a wise decision. Like we mentioned earlier, a car is a depreciating asset; it loses its value with time. But, if you manage to shell out money from your pocket as down payment, you will be minimising the total cost of borrowing. Making a down payment eases the total loan burden for you.
Car add-ons and financing – It’s a trick!
Looking to get add-ons for your new vehicle to enrich the overall experience? Well, your lender or dealer may offer you financing for these too. Opt for this and you’ll be increasing the total loan amount. This will result in you spending a lot on a depreciating asset that wouldn’t fetch you much in return in a few years. So, instead of taking up financing for add-ons, you could instead purchase them from any car-accessories market for a much cheaper price.
Additional Reading: 5 Common Misconceptions About Car Loans
Okay, now you’re ready to get yourself a Car Loan. Look nowhere else because the best Car Loans in town are here! Click the link below to get started.