Cars are considered an investment these days. It’s not possible to purchase a car without money. The simplest way to receive money is to borrow. Loans are considered to be the best source of finance. A car loan may be a potential pitfall if not availed carefully. We tend to rush into financial sources without considering their constraints which could lead to unexpected perils. The blog discusses the common errors we tend to make while taking an automobile loan.
- Not deciding the budget first
We usually set our heart on a car and then think about the money. It is wiser to plan finances, set a budget, and select a car that fits. Do not go for cars that are way beyond your budget as we might spend a lot of time paying the interest. By planning the finance first, we can also look into the offers available and save some money to even switch to a higher-end model.
- Loan turning upside down
The value of your car goes down as time goes by and there might be a point where you owe more than the value of the car. This is called being underwater or having negative equity. For the long-term length of the loan, we might end up owing a lot more than the actual worth of the car. For instance, if we sell our car before we repay the loan, the lender should pay the difference between the loan and the value of the car. Also, if the vehicle meets an accident, the insurance only covers the car value, and the rest is paid from pocket. This problem can be resolved by taking a loan for a shorter term.
- Selecting a longer term
Longer-term loans may have lesser interest rates which may tempt us to go for it while shorter terms have higher interests. But the overall amount we pay for longer-term loans is more than that of short-term loans. So, it is better to choose a shorter term to repay.
- Ignoring loan comparison
It is significant to check at least 3-4 different lenders and highlight the pros and cons of each before selecting the best loan. It is always better to go for authorised banks rather than private money lenders as the interest rate may be high.
- Thought of no down payment plans
No down payment means taking your car out of the showroom without paying a single rupee. As enticing as it sounds, you’ll just end up paying a lot more as interest. A 15-20% of the vehicle’s value should be kept as the down payment.
- Disclosing the affordable EMI
Discussing your loan options with the dealer might sound very helpful as they give us options that are the best suited for us. But, that’s not what happens, if we disclose the amount we can afford every month they’ll give us add-ons and higher interest rates claiming that to be the best option.
- Not considering online lenders
Loans can be taken from an online lender such as Kuwy. Kuwy ensures there is minimal paperwork and electronic loans can be availed without stepping out of your house. Good deals can be offered by online dealers.
- Converting your existing loan into a new one
Some dealers might offer a new loan even if a pending loan exists. The old loan isn't waived off instead it is added to the new loan availed. The loan-to-value ratio becomes very high, that is you will be paying for two cars instead of one.
- Not avoiding your credit score
A credit score is a number from 300-850 that decides a customer’s worth to borrow money from a lender. The more the score more appealing it looks to a lender to lend. The credit score depends on how we pay our credit card bills, the amount of credit money we owe etc. The credit score is also called the CIBIL score.
- Used car loans
Loans for used cars are very difficult to avail, and if taken somehow, they are not worthy enough to be used as finance to buy a car. But there is always a problem when it comes to used cars and if the car does become a scrape, it would be pointless to pay the interest. So, it is better to buy a used car with cash.
Always remember all the above points before you opt for a car loan. Only a careful selection of the auto loan offer will help you benefit from the finance scheme. Saving that amount of money over the life of the car loan is definitely worth the research and time it takes to refinance and find a better loan. Kuwy offers a range of the best car loans with as less paperwork as possible. It is an online and trusted lender for car loans.
Happy and fun learning!