Money helps fulfil all the desires and aspirations. It would help if you spent it wisely and made the right investment decisions. Many people spend money buying a car, a house, jewellery, and other assets to re-invest to earn returns in the future. They can also borrow a car loan from banks and financial institutions as a car is a necessity and a sign of prosperity.
Before choosing the model and visiting the dealer to bring home your favourite vehicle, you should spend some time analysing some figures and preparing a set of questions if you want to opt for car loans. It is always beneficial to make informed financial decisions as they help you save for the future. As you search for various loan options online, you may come across multiple terminologies related to auto finance. Here are some of them:
- What is the interest rate charged on a loan?
The first question that you should ask regarding car finance should be the interest rate that the bank would charge on a loan. Many banks offer car loans at low-interest rates. If you have a bank account already, you can get loans at relatively lower interest rates. Some banks offer loans at rates of less than 9.5% per annum.
- What is the total amount that the bank can finance towards the loan?
You can pay around 20% of the car price on your own and get the rest of the amount financed. However, many banks also offer loans up to 100% of the car’s ex-showroom price. Follow the 20% rule where banks should not take a loan costing more than 20% of your monthly income in EMIs. Paying a higher car loan EMI amount every month can put a strain on your finances.
- What is the final price I pay for the vehicle?
Even if the interest rate is low, apply for car loan while checking the final amount to pay towards it using the loan calculator. Consider various aspects such as the principal loan amount and tenure to get the lowest interest rate and save on the final car amount.
- What should my down payment and loan tenure be?
Smart financial planning is the key here. It is safer to choose a lower EMI amount to repay with affordable car loan interest rates. Choose a balanced EMI with a sensible tenure that does not put excessive pressure on your earnings.
- What are the fees included in the loan?
Apart from the interest amount, you need to pay fees on the auto loan. Ask about the fees applicable while sanctioning the loan and paying off the debt. Some of the most common charges include loan processing fee, documentation charges, credit report charges, registration certificate collection charges, part prepayment charges, foreclosure charges, late payment charges, loan cancellation charges, etc.
