Want to buy a car? 5 things to keep in mind

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Are you looking to buy the car of your dreams? With several options available on the market today, you might be tempted to invest in just one. Along with this, there are also car loans which are now readily available. It would be important to keep the following in mind when buying a car.

  • Credit score: First, try to focus on your eligibility. To assess this, you can use calculators available on bank websites. About 6-10 months before you qualify for a car loan, try to monitor your credit score. If you have a credit score of 750 or more, you could get a car loan at competitive interest rates. If your credit score is weak, you can seek to improve it.
Credit score

  • Comparative purchases: It would be important to do your due diligence before deciding on a car loan. Although you should go to your own bank because of your familiarity, you should also go to other banks and lenders. You should be patient and compare offers with at least two to four loan providers. “Different banks offer different interest rates to customers after assessing their profile and repayment capacity. Also, since there are two types of interest rates, floating and fixed, the rates differ from bank to bank. Remember that a few points of difference in the interest rate can make a huge difference in the EMIs (equivalent monthly payments) you have to pay for your loan, so consider even minute differences to find the lowest,” Adhil says. Shetty, CEO of Bankbazaar.com, a financial services website.
    It would be important to do your due diligence before deciding on a car loan.
It would be important to do your due diligence before deciding on a car loan. Photo of Tezos on Unsplash

  • Amount of the loan: It is important to establish a budget before visiting a showroom. The budget is not just the price of the car. It will also include registration fees, insurance premium and the cost of car accessories. Sometimes, while deciding the budget, people tend to forget about them. Also, due to excitement and seller pressure, people finalize a model/variant that is not in their budget. Determine the amount (both the down payment and the loan amount) based on your needs. Don’t be swayed or overdo it, otherwise cash flow could become an issue in the future. Experts say it’s wise to make as large an upfront payment as possible, as this would minimize the burden of the loan.
  • Repayment period : It is important to think carefully about the repayment period before deciding on a car loan. Although bank officials may insist that longer repayment periods will reduce EMIs, you might end up paying more for interest charges. Consider your current income and expenses, in addition to your upcoming monthly commitments during the term of the loan, before deciding on an appropriate loan term and amount.
  • Pre-Closing/Foreclosure Penalty: When you go for an auto loan, you should check with a bank if they charge a pre-closing penalty. Pre-closing a loan means clearing your loan amount before the specified term. This usually saves a decent amount of money that you would otherwise have to pay for interest. Many borrowers use their bonuses or any windfall gains to settle their loans. When you choose to pay a lump sum to the bank on the car loan before the actual repayment period, banks sometimes levy a pre-closing penalty on the remaining amount of the loan. “Some banks may have foreclosure fees when closing a loan early, and some may charge a fee for making partial payments. You should check all of this before taking out a loan, as it will impact your costs. totals,” says Shetty.
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