Owning a car is a major life goal for many of us. Most of us, aspire to gift ourselves a car when we start earning. Driving a car is one of the first steps we take as we enter adulthood. The best part is that buying a car today is easier than it has ever been. Car loans are processed by banks and non-banking finance companies (NBFCs) in a matter of minutes. With a few documents, a simple EMI plan and a low rate of interest, you can bring home your dream car. But before you apply for the loan, here are a few factors you must consider.
Compare the loan rates across all lenders: Depending upon the make and model of the 4 wheeler of your choosing, the interest rate on auto loans begin at 8.7% per annum. It also depends on your repayment capacity and the organization you are employed with. You should first begin by checking the interest rates offered by your existing bank since there is a high chance that as bank customers you could get special offers on the loan. You can also check with NBFC’s and dealer finance companies and then choose your lender.
Check if the EMI is affordable: Apart from the interest rate charges on the loan, your EMI depends on the loan amount and the tenure. You must check the EMI you can afford by deducting the necessary monthly expenses, insurance premiums, SIP contributions and other existing EMIs, if any. A higher EMI certainly lead to lower rate of interest charges, however it should not cost you your emergency funds or take a dip in other investments.
Consider a low loan amount: You will find many lenders who are willing to finance 100% of the car’s cost; it makes more financial sense to opt for a lower auto loan amount, if you wish to pay low interest rates. It is a good practice to first plan and come up with funds for down-payment before booking your car, but you must refrain from using your emergency fund to obtain the down-payment.
Opt for shorter tenures: Most lenders are willing to offer car loans for as many as seven years but that may not necessarily be in your best interest. Opting for a shorter tenure on the loan reduces you interest cost. While that is ideal, you should note that short tenures leads to higher EMIs so you must ensure that the loan tenure doesn’t affect your overall liquidity.
Read the fine print about processing fees: Lenders charge processing fees to cover the costs incurred when they evaluate your loan application. Opting for car finance during festive seasons is a good idea since a majority of lenders either reduce or completely waive off the processing fees. But you must check that they are not charging higher interest rate to make up for the loss incurred from reducing or waiving off the fees.
Compare the loan rates across all lenders: Depending upon the make and model of the 4 wheeler of your choosing, the interest rate on auto loans begin at 8.7% per annum. It also depends on your repayment capacity and the organization you are employed with. You should first begin by checking the interest rates offered by your existing bank since there is a high chance that as bank customers you could get special offers on the loan. You can also check with NBFC’s and dealer finance companies and then choose your lender.
Check if the EMI is affordable: Apart from the interest rate charges on the loan, your EMI depends on the loan amount and the tenure. You must check the EMI you can afford by deducting the necessary monthly expenses, insurance premiums, SIP contributions and other existing EMIs, if any. A higher EMI certainly lead to lower rate of interest charges, however it should not cost you your emergency funds or take a dip in other investments.
Consider a low loan amount: You will find many lenders who are willing to finance 100% of the car’s cost; it makes more financial sense to opt for a lower auto loan amount, if you wish to pay low interest rates. It is a good practice to first plan and come up with funds for down-payment before booking your car, but you must refrain from using your emergency fund to obtain the down-payment.
Opt for shorter tenures: Most lenders are willing to offer car loans for as many as seven years but that may not necessarily be in your best interest. Opting for a shorter tenure on the loan reduces you interest cost. While that is ideal, you should note that short tenures leads to higher EMIs so you must ensure that the loan tenure doesn’t affect your overall liquidity.
Read the fine print about processing fees: Lenders charge processing fees to cover the costs incurred when they evaluate your loan application. Opting for car finance during festive seasons is a good idea since a majority of lenders either reduce or completely waive off the processing fees. But you must check that they are not charging higher interest rate to make up for the loss incurred from reducing or waiving off the fees.
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