A car is not a luxury anymore, but a necessity in these times of the pandemic that have made public transport unreliable. However, it is not easy to buy a car. Many people find it difficult or impossible to pay the entire amount upfront. Instead, they opt for a cash purchase. It is a good idea to take out a car loan from one the many financial institutions that offer quick approvals and simple terms. There is also a downside to this. Many people rush to get loans without planning and verifying facts.
These are the top 5 car loan mistakes that people make, and how to avoid them. These tips will help you create the best car-buying strategy.
1. Borrowing too much
You must plan and budget before you apply for a loan. How much do you earn each month? What amount can you save each month to pay the monthly loan instalment? Apart from regular expenses, you will need to have some emergency funds. The first step is to determine how much you can afford each month. This will help you decide the amount of your loan amount. You should choose a car that falls within your budget. You will need to pay more for car insurance, Fast Tag and possibly other accessories. A used car is also an option, but it will have a lower price. Be prepared. You might pay a little more for a used car loan than for a brand new one.
2. You don’t need to check your credit score
Lending institutions will want to check your credit history and credit score. If your score is not satisfactory, they might be reluctant to lend you money. Keep an eye on your credit score to find out what the lender is looking. If your credit score is not up to the mark, you may pay higher car interest rates. Lenders will be more cautious about lending to customers with lower credit scores. Higher credit scores indicate that you are a reliable borrower who pays on time.
3. Choose a long tenure
Different financial institutions might offer different tenures, ranging from one to seven years. A maximum term car loan tenure is not recommended unless your monthly income is very low or you have excessive expenses. The length of the term will determine how much interest you pay to the lender. It is possible to end up paying more for the car than its value. Keep in mind that the car’s value decreases over time. It is possible to feel the need to change your car before your term ends. This could cause problems.
4. Do not research the Lenders
There are many lending institutions that offer loans with flexible terms and attractive terms. It is easy to get swayed by the offers and choose a lender without doing proper research. Before making a decision, it is important to review the terms and conditions, interest rate, tenure, service, speed, approvals, and other factors. Make sure to review the fine print and check for hidden fees and penalties. Also, make sure you know if there is a penalty for pre-closing the loan. After you have reviewed all details, compare them and then choose the lender. You may believe you are getting the best car loans in India when in fact you could be being taken for a ride.
5. Financing Add-Ons
A car dealer may attempt to sell you unnecessary but attractive add-ons like a retractable sunroof or alloy wheels, seat covers and premium music systems, as well as parking sensors and cameras. These add-ons will increase the cost of your car by adding them to it. Your monthly payments and loan amount will go up. If you are unable to afford it or the item is absolutely necessary, it is best not to get any additional items.