With interest rates at an all-time low and the festive season kicking off, many of you may be planning to buy your dream car. Owning a car has become more convenient with car loans easily available. Keeping the following in mind will make your car buying journey easier.
First, it is important to get an idea of your eligibility. For this, you can use calculators available on the website of banks.
Also, monitor your credit score. A credit score of 750 and above means you can get a car loan at competitive interest rates. In case your credit score is low, you can look to improve it if you check it earlier.
Do your due diligence before zeroing in on a loan. Loan deals from car dealers may not be the cheapest.
“You should approach your bank because you already have a relationship with them, but you should also approach other banks. Also, check offers by finance companies,” says Arijit Sen, a Sebi-registered investment advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm.
Decide On The Amount Of Loan
One needs to set a budget before visiting the showroom. Remember, that the budget is not just the price of the car. The budget shall include registration costs, insurance premium and the cost of car accessories.
It’s easy to get convinced by the pushy salesman and finalize a model or variant beyond the pre-decided budget but remember that it will get added to your overall cost.
“When you are opting for an auto loan, you may feel that you can stretch your budget a bit more as you do not need to pay the entire money upfront. You need to be mindful of your needs. Based on your needs (not wants), you can determine the amount (both down-payment and loan amount) you want to allot for car purchase,” says Sen.
Since EMIs will get added to your monthly budget, review the affordability. “Along with your monthly household needs, lifestyle expenses, expenses towards dependents and others, the car loan EMI will get added to your monthly expense,” he says.
If the EMI goes beyond your paying capacity, you’ll get into a debt trap, so maximise the down-payment to reduce your EMI.
Get A Fix On The Tenure
The loan tenure plays a critical part while we are planning for debt. A five-year loan will mean lower monthly EMIs than a three-year loan, but it will also mean that you’re paying a lot more money as interest.
Remember that going forward, your expenses may increase. “Thus, considering your income and present expenses, you need to assess how you can manage upcoming commitments during the loan tenure. Analysing all these aspects, you can decide the suitable loan amount and tenure,” says Sen.