What mistakes to avoid when applying for a car loan

Cars are never just a vehicle; it is a passion for many of us, while it is a necessity for some others. After investing in a home, the car is the next significant investment for most of us. Purchasing a vehicle is also quite exciting, and it needs a lot of work too, which includes analysis to find the right car within your budget, available financing options, vehicle add-ons etc.

Finding the right financing alternative or car finance is very critical among all the efforts one has to put in. Choosing the wrong funding partner or not understanding the terms and conditions will damage your wallet in times to come. Today we've collected some of the standard but costly mistakes in car loans to avoid.

Not verifying the credit score and FOIR: The credit score and FOIR are the first two assessments a lender makes before a loan is approved. All verifications are performed to determine a car loan applicant's creditworthiness. The credit score is a numerical term provided by credit bureaus that represents a person's past credit behaviour. Lenders review the credit report to find out if you were well-organized with your previous loan payment.

The next assessment is done by checking the FOIR. The FOIR (Fixed Obligation to Income Ratio). This calculation finds out your existing obligations along with the applied loan. If the total of all payables is more than 50 per cent of the net monthly income, the lender may not grant you the car loan.

Not comparing the loan alternatives: A car's funding can be availed mainly from two sources. The first is directly from a financial institution, and the second is dealer support. There are some pros and cons to both options. Furthermore, if you want to choose a bank financing, you must pick the right bank for the four-wheeler loan. The interest rate and the terms and conditions can vary from lender to lender, like a personal loan. Comparing the funding choices will help you save a large sum of money in overall loan outgoings.

Long loan period: The long term of the car loan can often sound appealing as the monthly outgoings get smaller. But never to forget that a vehicle is a depreciating asset. The value of the car, especially the value of the new vehicle, depreciates very early. But keeping the term longer will hurt you in two ways. First, the borrowing cost will be higher due to the cumulative interest rate, and second, by the time you end up paying the EMIs, the car's value will depreciate in the market to a significant degree.

Not making down payment: A loan down payment is also useful in reducing borrowing costs. The or deals like 'zero down payment' tend to be an excellent deal for a car buyer, but if you turn the coin and see the other side you will know they are marketing gimmicks. 

Sponsor Ads

• Ad Space Available - Rent it Now!

Report this Page

Created on Apr 1st 2020 22:50. Viewed 419 times.

Share on APSense

Comments