During this period of credit crunch, and rising interest rates, it is not advisable to bank a huge amount of interest on your car loan. Prudent borrower is the one, who can finance atleast 30% of his car amount and take a loan on the rest. Here is a following checklist of what you can do to get your dream ride :
Plan wisely :
Always save for about 2 -3 years before you purchase your car, so that you can lighten the burden of EMIs on your finances. It is best to set your financial goals in advance and plan ahead to achieve them rather than falling into a debt trap.
Prioritise :
Do not give more importance to wants over need. Always bear in mind that safety features, fuel efficiency, maintenance cost of your car should be more important features to look out for rather then luxury deals which are not in your reach.
Lower the loan amount :
Try to pay as much as you can from your savings and lower the EMIs. Because in these periods of increased vulnerability, there are chances of the interest rates to go up than to come down. So select your loan tenure wisely so that your EMIs are affordable and that they do not exceed 25% of your monthly salary.
Negotiate on the interest rates :
Banks offer to you rack rates. However the actual rates will be much lower. The dealer can reduce the burden on the customer by pulling back his commission, the decision of which entirely rests on your dealer. Try negotiating as much as you can regarding the interest rates and see if you can get any subvention or financial incentives on the downpayment you provide to your dealer.
Opt for a fixed rate loan :
Fixed are gaining their popularity mainly because the remain unaffected towards cyclical changes in the rates and are more transparent. With the rise in the interest rates by almost 1-2%, banks have started offering floating rates on car loans, since 2007. But however car loans do not carry a reset clause, unlike the home loan, where, the interest rates can be changed once every 3 – 5 years, as stipulated by the agreement. However, the difference in the fixed and floating rates is between 0.5-1% which does not really affect the market since most borrowers have faced the pinch when the floating rates move up but have not experienced the advantages when the rates move down.
Go for your own insurance:
Mostly, borrowers have been benefited by paying upto 30% less on car insurance premiums than to what their dealer had to offer them. If you want to seal your old car, make sure you get the insurance amount transferred to the new car, if in case, you change your insurer.
Plan out for luxuries :
If you are a car lover, and want to accessorize your car with shining wheels and huge bass stereos, then save from your finances and fulfill your dream but not in a way that can cost you later.