Simple Car Loan Mistakes You Should Avoid
A car is no longer a luxury, but it is a necessity. The demand for four-wheelers has seen a significant increase during the last few years. In addition to the rise in the sales of new cars, the used car market has risen.
Here are five simple used car loan mistakes you must avoid.
- Choose a longer loan tenure.
You may want to reduce the equated monthly installment (EMI) and, therefore, choose a longer loan tenure. However, in this situation, the interest you pay over the long period is more. It is recommended you select the shortest term depending on your repayment capability. This will prevent you from facing financial distress in the long run.
2. Avoid checking credit score
The used car loan interest rate depends on your credit score. If you have a higher score, you may be able to avail of the loan at a lower interest rate. Even if you can reduce the rate by 50 basis points, you will save a significant amount during the loan tenure. Therefore, you must check your credit score and rectify any errors that you may find in the report.
3. Focus on the EMI
You may want to lower the EMI to reduce your repayment burden. However, focusing solely on reducing the EMI is not intelligent. You need to calculate the total amount you will repay, including the principal, interest, processing fees, and other charges. If this amount is high and you cannot afford to repay the same, you must rethink your decision to avail of the used car loan.
4. Not conducting research
Several banks and non-banking financial companies (NBFCs) offer different types of car loans. You must do your homework to ensure you can secure the most beneficial deal. You must understand the various features, terms, and conditions before you sign on the dotted line. You must read the loan document carefully to ensure no unpleasant surprises in the future.
5. Think emotionally
You may start with a budget when you begin looking for a used car. You must ensure the salesperson does not compel you to buy high-end models and stick to your pre-determined budget. He may provide you with a fantastic deal; however, you will have to face unnecessary stress while repaying the loan if you are tempted.
Although used car finance makes it easier for you to own your dream vehicle, you must be cautious while availing of the loan. Similar to other loans, auto finance must be repaid promptly to avoid any disastrous outcomes. Therefore, you must take your time and make a hasty decision that may have severe implications in the future.