Today most people want to buy a car as soon as they get a job. With numerous options of car loan available it is easy to buy a car, but the hard part is to get the best rates for the car loan. So after you have researched and test driven various car options and zeroed down on a choice the next step is to direct all your efforts towards shopping for the best car loan.
Here are some important things that you need to keep in mind in order to get the best possible deal on the car loan.
Shop for car loan separately
Most car dealers have a tie up with banks for car loans and they try to convince buyers to take that offer. They even offer discounts on accessories if you take car loan with them as they get a commission for every customer they get. Do not get tempted to blindly go with that offer just to save time. The car dealers’ deal may not be the best deal available. As the competition among banks is increasing, many banks offer attractive rate of interest and a longer tenure for repayment. You need to explore different options independently. Compare the interest rates and different features of the loan products across various banks to see which one suits your requirements. SBI Car loan offers the longest repayment tenure of 7 years.
Shop around for the best interest rates and terms
The interest rates vary from floating to fixed and from bank to bank. The interest rate on SBI car loan is 9.7%-9.75%. Even a small difference of a few points will translate into a lot of savings on the EMIs. Hence do your homework by comparing the quotes of different banks before approaching the dealer. Before finalizing the deal find out if the bank you have selected has any foreclosure penalty. Some banks charge a penalty if you prepay the amount before the actual repayment period. If you think you can prepay the car loan choose a bank that does not have any prepayment charges. With SBI car loans there is no pre-payment penalty or foreclosure charge. Banks also charge a one-time loan processing fee when you avail for a car loan. For example SBI car loan has a processing fee of 0.51% of loan amount. Try negotiating for a waiver of processing fees. Take all these things into consideration so that you can select your bank wisely.
Check your credit score
Banks check your credit score to assess your repayment ability before sanctioning a car loan. The loan amount and the interest rates are greatly affected by this number. Before filing an application it is always good to check your own credit score to know how your profile will appear to the lenders. A good credit score gives you a lot of bargaining power to negotiate for better terms and lower rate of interest. But unless you know your credit standing you will not be aware whether the interest rates the bank is offering is a reasonable one or not.
Opt for a shorter loan repayment period
The tenure of the car loan has a significant impact on the cost of your loan. As car is a depreciating asset you should try to repay the loan as early as possible. Opt for the shortest tenure that you can afford. Though a long tenure will reduce your monthly installment, the outgo in terms of interest will be more and it will significantly increase the cost of buying the car.
Make a higher down payment
Do not just go with the minimum down payment that is required to take the loan. If you can afford to pay a larger sum upfront then make a higher down payment. This will reduce the amount of loan, thus lowering your interest payment and monthly installments.
Time your loan
As the competition is growing banks usually have a monthly target to achieve. If you approach the bank at the end of the month and it is falling short of its target it may offer you cheaper deals, waive off processing fees or relax some terms and conditions to make the loan more attractive. Hence timing your loan appropriately is significantly important.
Taking these points into consideration while applying for a car loan will help you secure the best possible deal.