Top 5 Car Loan Mistakes You Should Never Make
Vehicles are never just a means of transportation; for many of us, they are a passion, while for others, they are a necessity. For the majority of us, purchasing a car comes after purchasing a home. While purchasing a car can be incredibly exciting, it also involves a lot of work. This work includes researching financing options, add-ons for your car, and the best cars within your price range.
Finding the ideal finance solution or vehicle loan is one of the most important efforts one can make. Automobiles are always expensive, and so are vehicle loan blunders. The improper financing partner or not understanding the terms and conditions could end up hurting your finances in the future. We’ve listed some of the most frequent yet expensive vehicle loan blunders today.
Not checking the FOIR and credit score:
Any lender’s initial two computations before authorising a loan are the credit score and the FOIR. Both computations are performed to determine a car loan applicant’s creditworthiness. The credit score is a numerical representation given by the credit bureaus that represents a person’s historical credit activity. Lenders look at your credit score to see whether you have a history of making on-time loan payments.
The FOIR is checked as part of the subsequent assessment. Using FOIR ( Fixed Obligation to Income Ratio). This calculation determines your current debts and the requested loan. The lender may refuse to give you a car loan if the sum of all your obligations exceeds 50% of your net monthly income.
One must verify their CIBIL score and FOIR before applying for a car loan in order to be an informed borrower. If you apply for a car loan without first determining your creditworthiness, you risk having your application denied.
Not comparing loan options:
A vehicle can be financed primarily from two sources. The first is provided directly by a financial institution, while the second is provided by the dealer. Each choice has advantages and disadvantages. Additionally, if you decide to go with bank financing, be sure to pick the correct bank for your car loan. The vehicle loan interest rate and terms and conditions may vary from lender to lender, just like with a personal loan. You can significantly reduce your loan’s overall cost by comparing your financing options.
Choosing long repayment tenure:
As the monthly expenses decrease, the lengthy loan term may occasionally seem appealing. Nevertheless, it’s important to remember that a vehicle is a depreciating asset. The value of a car, particularly a new one, rapidly declines. Therefore, extending the tenure will be detrimental in two separate ways. The cost of borrowing will be higher due to the compound interest rate in the first place, and by the time you have finished paying the EMIs, the market value of the car will have significantly decreased.
No down payment:
A loan’s down payment can significantly reduce the cost of borrowing. If you look at the other side of the coin and recognise that these are just marketing tricks, offers like “zero down payment” may appear to be a really excellent deal for a car buyer. You can never save money by skipping the down payment. Yes, you will have to pay a hefty price for it. All loans are governed by the maxim “Less now, More later.” Therefore, avoid the “zero down payment” trap and always put more money down to get a better deal on your car.
Financing for add on’s;
To make driving more comfortable, the car needs a number of accessories, like parking sensors, a car body cover, seat covers, and a music system. The cost of add-ons could be rather high when all costs are added up. A few lenders also provide financing for add-ons. It’s never a good idea to increase your loan balance if you wish to add accessories to your car. All of those goods are more reasonably priced in the market. It is never profitable to pay accessory purchase interest rates comparable to those on auto loans.
