Spotted your dream car? For most of us, buying a car isn’t as simple as picking one out and driving it home…vroom. You have to find a way to pay for it. For most car buyers, that means taking car loans.
Most car dealers are happy to take care of all the financing decisions for you. Yet, relying on them can prove to be a costly mistake. Without doing your own research on car loans, you may end up paying a lot extra via interest payments. Going through the right steps to get a new or used car loan can save you money.
Here is the list of 10 most common car loan mistakes. Read them, remember them and avoid them.
Don’t Ignore Credit Rating/Score
Before shopping for car loans, you must know your credit score. You can get your credit report and credit score free from many digital platforms. Be it a new car loan or a second-hand car loan, first read your credit report. If there are any discrepancies, correct them. This is because all lenders make their decisions based on the credit report.
Stop Choosing the Car First
Buying a car is a big step in your social life, but choosing the car first may be a big mistake. The smarter thing to do is to arrange car loans before selecting a vehicle. Choosing the car first makes you more susceptible to bad financing deals. The moment you choose the car first, you lose the freedom to shop the best deals on offer for a new or second-hand car loan.
Best Dealer is Not Equal to Best Financing
It is natural that the car dealer may offer you a car finance deal. Almost all dealers have tie-ups with different institutions. But, that does not mean you will jump at new or used car loan offered. The truth is it’s not always the best deal. Keep your options open. Buying a car may be a one-time decision, but car loans are a much longer engagement. When choosing a second-hand car loan, go for a trusted and transparent financial institution, like Tata Capital.
Obsession with EMIs
Many car loan borrowers focus on the monthly payment or EMI. This is a completely wrong approach. Your monthly payment will be manageable, but that doesn’t mean you are getting a good deal on car loans. There is more to new or used car loans than EMIs.
Don’t Let Emotions Drive You
Going with your gut is sometimes good, but not always. The brain should guide financial decisions, not the heart. You may have set your eyes on a great used car in your neighbourhood, but do not let emotions put you in trouble. When shopping for a second-hand car loan, keep your emotions out of it.
Forgetting What You Cannot Afford
Before shopping for car loans, it is very important to sit down and review your finances. It is important to figure out how much you can afford to spend. Remember, a car loan EMI is not the only expense. There will be recurring costs related insurance, taxes, maintenance, fuel etc.
You want a new or used car loan that will fit your existing budget.
Stop Relying on Interest Rate Alone
Many car loan borrowers make their decision based on a single factor: the interest rate. Yet, a low-interest rate does not mean a great auto loan deal. There are other factors like down payment that you must take into consideration. Interest rates are one part of choosing car loans.
Avoid the Longest Tenure
To lower EMIs, often borrowers take the longest car loans tenure. Spreading out your new or used car loan over a longer period of time will result in lower monthly payments. Yet, you will end up spending a lot more. If you want to lower the total cost of a brand-new or second-hand car loan, then go for the shortest term.