A car loan is a type of personal loan that is taken by a customer to purchase a car. The loan is paid by the buyer in monthly installments along with the interest on it. The lender can offer either a secured loan or an unsecured loan. In a secured car loan, if the borrower fails to pay the money on time, the car can be used by the lender to pay off the loan amount. To get an approval for an unsecured loan, the borrower must have a near perfect credit score. Also an unsecured personal loan will come with a very high interest rate.
What are the factors to keep in mind while taking a car loan?
- Check your Credit Score: Checking your credit score before taking a car loan is essential. A good credit score will go a long way in helping you get an approval for a personal loan with low interest rate. The borrower will also be able to enjoy low premiums on auto insurance.
- Determine your Budget: Before you apply for a car loan, determine the amount of money you can spend paying the Estimated Monthly Instalments (EMI) every month. Also take into account the additional maintenance cost of the car such as registration of the car, repairs, fuel etc. Calculate the difference between the money you want to save from the income you get in hand every month after tax. From this amount, determine the amount you can spend on repaying the car loan every month. You can use an auto loan calculator that is available online to calculate the EMI you would have to pay.
- Research Potential Loans: Researching for car loans before selecting one is an essential step. One of the best places to do your research is through the BankBazaar App. The app is available on the Google Play Store for android and the Apple App Store for iPhone. The app will ask the buyer for some details such as the amount required for the personal loan, the bank account in which the income is deposited, the type of car he or she wants, affordable budget, monthly income, any EMIs that he or she is currently paying etc. Using these details, the BankBazaar app will list the best offers for the customer. The good thing about the BankBazaar app is that it will list out every possible option for the buyer so that he or she does not miss out on the best deal.
- Pre-approval: Get a pre-approval for the car loan before you go and buy the car from the dealership. When you apply for a pre-approval, the lender will check your credit score which will lower it. Therefore, try to keep the pre-approval period as short as possible, ideally to a 14-day period so that even multiple requests by lenders to check your credit score will be counted as one. The advantage of getting a pre-approval done is that you know the interest rates beforehand. However, you need to keep in mind the fact that until and unless you and the lender sign the papers stating the approval, nothing is certain. The interest rate agreed during pre-approval is subject to change based on the lender’s decision on the valuation of the car.
What are the ways through which your chances of getting a car loan can be boosted?
- Finding a Co-signer: If your credit score is low and you are unable to get approval for a car loan on your own, you can find a co-signer with a better credit score to help you out. Generally, borrowers ask a family member or close relative to be their co-signers. You have to be careful while getting a co-signer on-board for taking a car loan as the co-signer is pitting his/her credit score on the line for you. If you are unable to pay the car loan back in time, both you and your co-signer’s credit score will be negatively affected.
- Getting the peer to peer Vehicular Loan: If you cannot find a co-signer to back you up while taking a car loan, you can instead connect to a lender online. There are many websites that provide this facility.
Overall, taking a car loan might be a good idea only if you can make the payments on time. Taking a loan is a big decision in a person’s life so find a loan that is suitable according to your budget, check all the terms and conditions thoroughly and get a pre-approval.