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Things you must know before taking a car loan
Every car showroom and used car seller offers car with easily sanctioned loans. They are just cashing in on the huge demand for cars among the middle class. Understanding this necessity, many banks have simplified the car loan application format. In fact they make up a major chuck of loans from banks apart from Home loans in our country.
But the first time buyers and first time loan borrowers need to keep tab on certain facts before applying for a loan.
What is the actual cost of loan
Ensure that you know the interest rate being offered by the bank. The interest rate offered and the interest rate you take home could be different. Some car dealers, who have an understanding with certain banks, can help get the interest rates down by small percentage. This means that consumer will get a lesser rate of interest. So check how much actual rate of interest you can get. Factors considered for sanctioning loan.
The financial position of the loan applicant
It is important to determine the financial position of the applicant in order to arrive at the credit limit for the applicant. Various banks have their own methods to arrive at the credit limit. As a small portion of the cost is borne by the loan applicant himself, the remaining has to be paid through loan. Hence, it is important to know the percentage of credit limit and personal funds required to purchase the car. Few banks sanction loan up to 90 percent car cost.
Capacity for repayment
After checking the financial position of the applicant, banks verify re-payment capacity. Banks verify if the borrower has the means to repay the loan. The banks make sure that the applicant has no problems making EMI repayment on time.
Whether he has any other loans to his name
Banks also verify if he has any other financial obligations, which may make the loan re-payment difficult for the applicant.
Purpose for purchasing a car
The purpose for purchasing the car has to be clarified before availing the loan. This fact helps banks determine the kind of loan to be sanctioned. It will also affect the credit limit. Car bought for personal use will be brought under the purview of personal loans.
The duration of repayment
EMI is calculated based on the duration for loan repayment. It is stipulated as 3 years, 5 years, or 7 years. The maximum duration is 7 years.
Discounts
Check the discounts available with the manufacturers, dealer and the banks with regard to rate of interest.
It is important that all the available options are studied before you go for a car loan. Else you could be left with a huge baggage of interest to be paid. Make a clever buy rather than to repent later.
