Everyone has a dream car that they wish to own someday and are working hard to be able to purchase it. Buying a car nowadays is not as difficult as it used to be, thanks to all the car financing options that facilitate the process. Getting a car loan was once quite a complex process, requiring many visits to the bank and lots of paperwork. However, financing agencies and banks now compete to facilitate the loan application process and provide better deals. If you’re thinking about getting your dream car, here are some things to consider before applying for a car loan.
1. Your Credit Score
The major factor that lenders put into consideration while examining your car loan application is your credit score. A credit score of 750 and above would be ideal, and you can get to know your score by getting your credit report issued for free once a year. There are ways to improve your credit score if it’s lower than you want it to be. You can always opt to try online lenders who can give you an estimate for an interest rate and the max amount you can spend on the car.
2. Loan Amount and Tenure
The total price lenders will offer you depends on certain criteria that differ from one lender to another. However, as a general rule, the higher the loan amount, the higher the interest rate and monthly installments. Even the fastest growing vehicle finance company will advise you to pay the maximum down payment to minimize the loan amount. Paying the maximum down payment will get you the lowest interest rate possible. When it comes to the loan tenure, it will depend on the amount you can pay every month. The faster you pay off the loan, the better because it will mean lower interest rates. Don’t worry, most lenders offer up to 7 years of tenure on their loans.
3. Interest Rate
As you probably know, any loan taken out will have an interest rate, and for car loans, the interest rate ranges between 8.5% and 14% per annum. There are some factors that determine the interest rate including your monthly income, employer, car model, and loan tenure. As mentioned above, reducing the loan amount and tenure will reduce your interest rate as well as larger monthly installments. The process of looking for a lender offering the lowest interest rate can be tedious, but the smallest difference in the interest rate will go a long way in the overall interest rate.
Now that you know what factors to keep in mind while applying for a car loan, it’s time to start your search. There are other things you should keep in the back of your mind when choosing a lender like the processing fees, service tax, and car insurance. Remember that there’s always room for negotiation if you think you can get a dealer or lender to offer you a discount or easier loan terms. It might take some time and effort, but you’ll eventually walk away knowing you got the best deal for your new car.