November 26, 2021

10 Must-know things before applying for car loans

By : Ellie Brown

Owning a car is the priority and dream of every individual. A car becomes an integral part of your life once you buy one. However, it is possible not to have sufficient money to support upfront fees.

In the past, buying a car was a distant dream because one had to spend a large amount of money, but now one can simply get a car loan.

There are a few things you should keep in mind before applying for a car loan:

Things to know before applying for car loans

You know you will need to make the purchase, but before you take the car loan, you need to know the process. Loans, be it guaranteed loans or car loans, accrued interest. So be prepared before you complete the deal. Before applying for the process, you need to do:

Know your credit score

With any loan guaranteed loans, car loans, student loans, your credit score is a determining factor in determining the interest rate and the loan amount. Different lenders have different criteria scores needed to qualify, which vary from company to company.

Monitor your credit history and educate yourself about it. Find out if you have any delinquencies and improve your credit score.

If you have a good credit score, you may get loans easily and at reasonable rates.

1) Get Approval and then buy

Rather than entering the showroom and discussing the loan, it is always best to walk in with a financial offer from a bank or credit union.

You are assured that you have the money to cover the expenses when you have a pre-approved offer. It can positively affect your loan rate if you don’t have a good credit score but can control your interest rates, monthly payment amount, or a competitive rate based on your financial standing. Walking into the showroom with secured and guaranteed loans in your pocket grants you flexibility over price and features.

2) Processing fee- the less, the better

Depending on the size of the loan, the processing fee may vary. In some countries, banks even waive off processing charges on holidays or certain occasions. Car loans are short tenor loans and go down quickly, slashing the interest rates as well.

Don’t just focus on the interest fee, but the processing fee as well.

3) Analyze the Prepayment charges  

The value of a car depreciates. As a car gets older, its value decreases. It is therefore advisable to pay off loans early. Car loans are available as prepaid loans. Understand other conditions as well before prepaying the loan. These conditions differ from bank to bank. Also, before resorting to prepayments, check whether there are any prepayment penalty charges.

4) Understand the dealership financing options

Have you ever come across 0% financing or massive cash-backs? Don’t fall prey to them. Analyze whether they are genuine and go through the terms and conditions of the same. Most financing options are available only to qualified buyers.

Never accept the first financing option suggested to you by the dealer. Instead, borrow an amount that doesn’t affect your credibility and help improve your credit score.

5) Ensure to compare different lenders

Comparison shop for the best interest rate on guaranteed loans and car loans before you take out any loan. Lenders approve loan applications and set interest rates primarily based on the credit score, cost of funds, and credit profile of the loan applicant.

It may change the interest rate for the same loan variety across other vendors. It is best to compare the loan offers from different lenders and grab the best loan offer.

6) Check the documents

Sometimes, securing a car loan is a tiresome deal. And it further becomes complicated if you don’t get your documents sorted. Lenders check documents multiple times along with the credit score before finally sanctioning the car loan. Some important documents to keep are income proof, photograph, id proof, past income tax return statements, valid address proof, NOC, bank details, 3 years of residential or banking history.

Once you have all the details of the finance company, the business manager or the account manager will sanction the loans for you.

It is possible that if you are applying for car finance like guaranteed loans, you may require submitting your driving license as well. If you can’t find your driving license, you will need to provide additional personal identification. It is usually a passport or ID. You can ask the dealer itself about the information or documents required.

7) Choose the desired car specifications

Here are a variety of car models and brands available on the market. It is no more a hassle to choose a car that meets all your requirements.

The car must fit the buyer’s budget, lifestyle, and taste. So, before exploring the car designs, jot down the requirements. Decide whether you want to go for a petrol or a diesel one. It will help the car-seeker narrow down some cars having specific specifications.

8) Calculate the car’s resale value

Before buying a car, seek insight into its resale value. Brand, engine and fuel efficiency are major parameters that decide a car’s resale value. Apart from this, maintaining a car is one of the major concerns. That means you have to save extra. Therefore, before investing, it is ideal for checking the resale value of the car regardless of the fact whether you are seeking an old or an upgraded version.

9) Have an estimate of total purchasing costs

Purchasing a four-wheeler has other complications as well. Some costs are insurance costs, closing costs, prepayment charges, or processing fees; guaranteed loans. Insurance costs largely affect the price of the car. Thus, it is essential to consider these factors before finally buying a car.

Thus, it is essential to do financial planning before taking a car loan and buyers should also check the best monthly instalment or guaranteed loans options and ensure whether they can pay the loans hassle-free. Buying a car is akin to making the most significant investment in your life, like at home. Thus, select the right car loan that is flexible and easy to repay. Compare the services of various lenders before taking and repaying the car loan.

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