Top Tips When Taking A Car Loan
Saving up to purchase a car can be pretty challenging, given you have many other financial obligations. A car loan is the easiest way to start your car ownership journey. Below are some interesting tips on how to apply and manage your car loan.
Set A Budget
Although you might qualify for a large loan, it is always wise to assess your finances before applying for credit. For instance, other obligations such as student loans and rent could take a significant part of your income. Therefore, examine your income vis-à-vis your expenses to establish what you can afford.
Compare Loan Rates And Pricing
Most banks and financial institutions will readily process your car loan if you meet their eligibility criteria. Typically, they will calculate your credit score, your income, available deposit and age. Most people will only check the loan interest rates. However, many other factors can make one loan much more attractive compared to another. For example, you should examine additional costs such as valuations, processing fees and insurance. The loan processing time would also be vital if you need to purchase the vehicle within a short period. Inquire if the lender requires additional collateral other than the vehicle. It happens if you have a poor credit rating or unstable income, and the bank considers you a credit risk.
You will also want to examine the terms of the loan. For instance, check the repayment period and the monthly instalment. Moreover, inquire about the bank's penalty policy. For example, many lenders will fine you for late repayments or if you opt to clear your loan in advance using lump-sum payments.
Inspect The Vehicle
The underlying principle when buying a vehicle using a car loan is that you should get value for your money and have adequate protection in case of an unforeseen event. The car should meet the following criteria:
- Ensure the vehicle is in perfect mechanical condition. You do not want to spend extra funds on repairs while servicing your loan.
- Purchase the car from reputable car dealers who are willing to give discounts, warranties and guarantees.
- Examine the resale value of the car. If you cannot service the loan, you could opt to sell the vehicle, offset the remaining amount and still have some cash for other projects.
- Verify that the vehicle qualifies for comprehensive insurance coverage. In case of an accident, it will protect you from making monthly instalments for a totalled car.
When taking a car loan, set your budget, compare various loans and ensure the vehicle meets the required eligibility criteria. For more information about car loans, contact a financing service.