In heavily populated Indian cities, commuting with public transport is a challenge. For this reason, many are choosing the comforts of a private vehicle over it.
Now, before you start on the journey to bring home the latest car model, know that purchasing a car is a significant investment. Paying the entire amount at a go can burn a substantial hole in your savings, which you could need for an emergency. Besides, some buyers simply don’t have the required savings to invest in a car.
Unsurprisingly, car loans are a popular way of financing the purchase without suffering a cash crunch. If you are thinking about applying for a car loan, here are some things you should consider to make a smart decision.
Evaluate your Credit Score
It’s a healthy practice to evaluate your credit score before applying for a loan. Get an understanding of your credit score a few months in advance so you can iron out any issues. If you have a good score, banks will be much more comfortable lending you money. The better your score, the more favourable will be the terms of your loan, including the interest rate. To check this score, you can visit the official website of CIBIL and get a free report.
Compare Interest Rates
The rate of interest is perhaps the most important component of a loan to the borrower. Sometimes, first-time borrowers may not realise that even the smallest percentage difference in the interest rate can translate to thousands of rupees. Therefore, it’s prudent to compare the rates of several banks before finalising a lender.
Many banks also offer reduced interest rates to loyal customers. So, if you have a savings or current account with a particular bank, you might just get a good deal on your loan.
Pro tip – Time your loan right. Many lenders run discounts during the festive season to encourage borrowing. Keep an eye out during this time of the year.
Processing Fee and Prepayment Charges
Banks require you to pay an upfront processing fee before the loan is disbursed. Therefore, look for banks that charge a relatively lower processing fee.
Festive seasons bring a range of discounts on the processing fee as well, with some banks going the extra mile and offering a complete waiver.
Finally, know the prepayment fee charged by the lender, as it can have a significant impact on your overall repayment amount.
A Few Last Words
Purchasing a car is perhaps one of the most important decisions you’ll make in your life. Thus, it warrants careful financial planning, especially if you’re taking a car loan. Although, there are many car loan options available in the market, not all will be suitable for you.
Compare different loan options, check all related costs, and select the most suitable lender for a smooth borrowing experience.
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