A car is the first big-ticket purchase in the lives of most people. The first major expense you plan from the moment you start working and earning money. Be it for the practical reason of the daily commute or just to assert your independence, a car has become a necessity these days. However, regardless of the model you choose or the money you make, it is wise to take a loan for buying the car. While there are enough financial institutions offering car loans, here are a few things you need to know before you opt for a loan.
5 facts you need to know
- Used Vs New: Loans are available for both new cars as well as pre-owned cars. However, the terms and conditions, the interest rates, and the process is different for both types. So check out the loan facility for the specific car type you want.
- Interest and Repayment: You can choose the loan tenure based on your requirements. However, the interest rate is mostly non-negotiable. Different institutions have varying interest rates. So do your research thoroughly and opt for a loan with repayment terms that suit you and a lower interest rate. Also, remember that many lenders charge a processing fee for early repayment. Take that into consideration.
- Credit Score: Every time you apply for a loan, your details are sent by the lender to the credit rating agency to check your credit worthiness. So before you apply for the loan, you can check your credit score. Moreover, long before you apply for the loan, try and establish a good track record.
- Loan amount: The maximum loan amount is determined by your age, income and credit score. So, while your friend might have got 90% of the total price of the vehicle, you might get only 65%. The trick here is to remember that there is often room for negotiation here. You can bargain and get a higher loan amount than originally sanctioned.
- Car hypothecation: When you take a loan from an institution, the car is automatically hypothecated to the lender. What it means is, the car stays in the lender’s name, not yours. If you are unable to repay the loan, the car can be seized by the lender. Hence, it’s all the more critical to take a loan with terms that favour your financial situation.
- Documentation: While applying for a loan, you might need to submit some or all of the following papers:
- Proof of age
- Proof of identity
- Proof of address
- Car documentation
- Income proof, which might include last 3 month’s salary slip/compensation letter/previous year’s form 16
- Other charges: Some financial institutions charge a lower interest rate but levy a huge amount of processing fee for clearing your documentation. Check the total processing fee amount before finalising on the lender.