Before we get on to the things to consider before taking a car loan, we need to understand what car loan is. A car loan is a method to buy a new or used vehicle of your choice. Money could be borrowed from a lender and paid back in time with a certain amount of interest. A car loan is an effective way of buying a car you have dreamt about.
Before purchasing a car a certain parameters should be understood by the customer because he or she could be confused while going out for shopping. So here are some of the factors to consider before taking a car loan:
1) Criteria For Eligibility And Credit Record:
Before applying for a loan one should make sure a person have good credit history and it qualifies the eligibility criteria set by the bank. Request to a loan can be rejected by the bank if you are not having a good credit history. So make sure that your credit looks as good as it can be.
2) Down Payment And Monthly Payments:
An initial payment made during a purchase is known as down payment. If one pays higher down payment his loan and monthly payments are effectively reduced. By giving smaller down payment, a person can never enjoy comfort later. Monthly payments are the one which a person have to pay on regular basis for years to come. One should set a comfortable package of monthly payments so that he faces no difficulty to make payments regularly.
3) Rate Of Interest:
Interest rates for car loan can differ, so make sure to take a good comparison of various banks or lenders before making your final choice. Interest rates can affect the final price of the car and more interest is applied on longer loan so try opting for a loan which can be paid in shorter period of time.
4) Length Of Term:
You can choose to pay your loan in different periods of time as it is an option provided by the lender. Generally the payment period can vary from 1 year to 7 years. Be careful for longer loans as it can increase the price as well as the responsibility of payment for a longer period of time.
5) Pre-Closure Penalties:
Check if your bank has any pre closure penalty charges before applying for a car loan. That’s the only way to know if there are any hidden bills associated with the loan. You can get financial charges if you don’t take care of the penalties.
6) Processing Fees:
Loan requests can be accompanied by processing fees charged by the banks. So opt for the bank which charges low processing fees. Also check other charges like late payment charges in case you missed your monthly payment.
Banks like to sell additional insurance with loan. As a borrower you can ask the bank to guide you for the insurance plan. Insurance do help to cover your loan payments but it is not a good idea to get insurance from whom you are borrowing credit.
In the end, make this certain that you are purchasing a cost effective car and prevent yourself from taking a loan that create difficulties for you in the future.