These are a few things you must know before taking a car loan.
- The importance of credit score :- The credit score is of huge importance in the case of car loans. A credit score lets the lending company know what type of credit behaviour you have shown in the past. This helps them to assess how big or small a risk you are for them. If you had been a borrower in the past who had paid all her monthly dues on time, you are likely to get a very good discount rate. On the contrary, bad credit history can land you up in a high-interest offer.A good credit score can help ignore the bad records in your credit history therefore try building it.Hence, be very careful about your credit history and credit score.
- You will get only 80 percent of your car's value :- People have this misconception that car loan providers provide 100 per cent of the car's value as a loan, but that's not true. The maximum Car loan that is usually given is 80 percent of the value of your car. This is to safeguard their profits in case the borrower of the loan defaults.Hence, you would only be able to get 80 percent of the value of your car as a loan and the rest you would have to arrange somehow. People usually take personal loans to finance the 20 per cent.Check the hdfc bank car loan interest rate here.
- Lenders Who have tied up with car dealers might charge extra :- Lenders and dealers tie up to the benefit of both. Dealers get the benefit of retaining a customer by presenting a ready finance option (the car loan company they've tied up with) and the car loan lenders get the benefit by having a new customer. The car loan companies give a percentage of the profit they get by helping you finance your car to the car dealer. This might make the lending company charge that extra amount from you by including it in interest cost or other charges. They might also charge you higher rates of interest with the thought that they are convinced of not going to a lender to ask for loans.Hence, it's advisable to do a proper comparison and then go for a car loan from a lender.
- Car loans are better than Personal loans for financing :- People also go for personal loans to finance cars when they either don't qualify for a car loan or their lender doesn't provide a used car loan in case they've bought a used car. It's important to note that since car loans are secured loans, they have lower interest rates than personal loans. Moreover, with so many options available these days it's barely possible that you don't qualify the eligibility of any lender. Maybe you still need more research. This will also help you find lenders for financing used cars. Used car loans often have higher interest rates. In this case, you might opt for a personal loan if the interest rate is exorbitantly high. Otherwise, you must only choose car loans.However, you can choose a personal loan to finance the leftover 20 percent of your car's value that your car loan provider would not provide you.
- Longer repayment tenure must be avoided :- Car loans can be repaid in the medium-term as well as the long term. In case you decide to pay it in 3-4 years, you'll be paying lower interest and your car would still be as valuable as it was before. In case you decide to repay it in a longer duration, you will end up paying a lot of interest on it. The total amount you would then pay for the 80 percent loan you took for your car might even exceed the actual worth of your car. Moreover, at the time when you will complete your payments, your car's value might have decreased.
Also Read:- What Is Meant By A Flexible Car Loan?
