Things To Keep In Mind While Taking A Car Loan This Festive Season
Here are some things to consider if you want to buy a car to reduce your reliance on public or shared transportation and take out a car loan to do so. Make a financial plan for your auto loan. Don't compare your affordability to the advertised EMI. Lenders will finance up to 100% of the vehicle's cost and provide a loan term of up to seven years. However, don't go overboard with your spending. The on-road price of a car should not surpass 50% of one's annual salary, according to a rule of thumb. A person earning Rs 20 lakh per year should buy a car that costs Rs 10 lakh on the road. Make a detailed budget and examine your cash flow stability. Make a down payment of at least 20% of the vehicle's cost. Take out a loan for no more than four years if possible. Keep your auto EMI to a maximum of 10% of your monthly pay. The higher the interest rate, the longer the loan duration is. In the end, it raises the cost of an automobile. If you have additional EMIs (home, student loan, etc. ), make sure you aren't paying more than 40% of your take-home income on all of them together. Examine vehicle loan offers in their totality. During the holiday season, discounts and freebies abound. Car dealers frequently provide discounts indirectly through zero- or low-interest financing. Because each dealer has a separate relationship with a different lender, the products available vary. As a result, analyse the offers in their totality and shortlist a lender after accounting for all costs. Buying a car from a dealer and getting a loan from a finance company separately might sometimes be less expensive. Look around. Obtain a loan that has been pre-approved. It will assist you in negotiating with financiers. Some dealers/financiers may be willing to provide you additional discounts over and above the usual if you meet your month-end goals. Processing fees (about 0.5 percent of the loan) are frequently waived for creditworthy customers or current deposit holders by banks and NBFCs. Examine the fees associated with prepaying your car loan. There are normally no fees if you prepay a car loan up to a certain amount. For a car loan, prepayment penalties might be as high as 5% of the outstanding balance. Some PSU banks, on the other hand, are waiving the fee for their customers. Furthermore, some banks do not allow prepayment during the first year of a loan. Make the necessary checks and balances. Pay close attention to the small print. Low-interest rates are only available to people with the best credit scores as determined by CIBIL. You can even get a tailored offer if you have a good CIBIL score. Finally, keep in mind that many car loans are variable-rate and linked to the repo rate. If interest rates rise in the economy, your loan term will lengthen, limiting your ability to contribute to other key financial goals. As a result, maintain the appropriate cash cushion.