Although cars are complex machines with a number of moving parts and mechanisms, people still know more about car maintenance than auto loans. If you are planning to apply for an HDFC car loan or SBI car loan, etc. it may help to get familiar with the basics and assess a few things before giving your final nod.
The Down Payment
To attract new customers a number of car dealers and financing companies offer “no money down” structures in auto loans. In other words, you can practically own a car without making any down payment. However, this is usually not a good idea. This is because the smaller is the down payment (zero in this case) the more money you will end up paying in the long run in the form of interest. Depending on the interest charged on your auto loan, it is possible that you end up paying double the price of the car you have bought by the time the tenure is completed. Thus, it’s better to make a sizeable down payment even if you have the option of paying nothing at all.
Cost of Car Maintenance
Many people make the mistake of ignoring the car maintenance costs when applying for an HDFC car loan, etc. However, it can easily lead to a major financial strain when you have to pay the EMIs along with handling the maintenance costs. So, it’s better to settle for a loan term and EMI in such a way that you handle both the installments and maintenance costs easily.
Direct Vs Indirect Lenders
Usually, you can either finance your car from a financial institution directly or through the car dealer himself. However, while you may find it more convenient and simpler to have the dealer deal with the financing, it may cost you more than getting it done through a bank. This is because the car dealers often receive mark-ups on the interest rates offered on in the form of other monetary perks, etc. which can inflate the loan price. Thus, it’s better to compare both your options and pick the one that’s more economical.
Early Payment Fees
It is very important to enquire about the early payment fees or the prepayment fees for your loan. It is the fees that may or may not apply if you decide to repay your loan in full before the actual completion of the tenure.
If the prepayment fee is high then it is better to find an alternative loan. This is because people prepay their loans all the time, and if the same happens with you then you can avoid paying a large amount in the form of the early payment fine.
Interest Rates and Credit Score
Credit scores are linked to the interest rates offered by the banks in a way. This is because, loans for bad credit scores are usually offered at high-interest rates and vice versa. Thus, you should check your credit score before you apply for an auto loan anywhere. Since all the major credit bureaus of India, such as CIBIL, Equifax, etc. offer one free credit report per customer per year anyway, it won’t cost you a thing.
If your credit score is low then it is better to avoid applying for auto loans for a while, even if there are loans for bad credit as well. This is because it could damage your score even further. Instead, you should try improving the score first. Once you have increased it beyond the average you can apply to stand a better chance for approval and an attractive interest rate.
A large number of auto loans are rejected simply on the basis of credit scores. Thus, if you are having trouble obtaining a car loan of your choice, be sure to check your credit report. If you think it can be improved then you can get it done with the help of any well-trained and experienced credit expert.
If you can’t find one then you can always contact Credit Sudhaar, which has some of the best credit experts in the industry.