For the average, salaried individual, buying a car from your savings can take a few years. With the rising demand for cars and the high rates of inflation, it can be years until one can afford a car by paying the entire amount of the vehicle. What’s more you may have to invest all your savings into purchasing the vehicle. Instead of saving to buy your car for years and facing the high inflation rates you can simply take out a car loan. You can pay off the loan in easy equated monthly installments or EMIs. If you are planning to buy your first car, here are a few simple tips that can help you.
Fix a budget and adhere to it strictly: Before you take out a loan, you must determine your repayment capacity. Understand the fact that you have to repay the loan over the next several years. Determine the amount you need in advance after fixing a budget and take out an auto loan of only that amount. Your lender may find you eligible for a higher loan amount, but you must stick to the amount you need and not opt for a higher loan amount.
Compare the various loan options available: Your loan amount consists of several components. It includes not just the principal amount, but also the interest rates, processing charges, foreclosure charges etc. As such, you need to be wise when you select your lender. You must compare various lenders and the interest rates offered by them before you apply for car loan. Select the one that offers the best interest rates, longer tenures and charges low processing and miscellaneous fees.
Save enough for down payment: Most lenders provide 80% to 90% of the on-road price of the car as the loan. A handful of lenders also offer 100% price of the car’s on-road price. While there is nothing wrong in taking a higher loan amount, making a down-payment reduces the total loan amount. It also affects the interest rate you pay on the auto loan.
Choose an appropriate tenure: You can also take a loan for a longer tenure, if you wish to pay smaller EMIs. However, this too, may not be in your favour. While it is possible to get a car loan for tenures lasting up to 7 years, you should try not to opt for maximum tenures. You must choose a tenure that suits you and one that you can handle. Longer tenures lead to higher interest rates over the duration of the car loan.
Don’t accumulate credit debt: Lenders ask you to present your credit or CIBIL scores when you apply for the loan. This enables them to estimate your credit repayment behaviour. They also assess if you have paid off your previous loans in a timely manner. If you have a credit score of 750 and above, your loan can be sanctioned very easily.
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