With changing societal dynamics, a car is no longer considered a luxury possession. As a result of the rising middle class landscape, cars have become one of the quintessential needs of urban lifestyle today. Furthermore, young professionals are increasingly buying cars at the early stages of their careers. This has led to a spurt in people buying cars on loans. In order to rake in this sentiment, banks too are offering auto loans on attractive interest rates and are allowing for longer duration repayment facility.
In addition to loans, car leasing is increasingly gaining traction among people these days. Getting a car on lease is a good option for people who like to change their cars frequently.
While it involves many concerns, two of the most important factors to consider while applying for a car on lease are: number of mileages allowed and the adequate balance between sales price and the resale value of your car.
All leasing agreements include a pre-decided number of allowed miles. Additional charges in the form fines are levied if you cross the miles limit. So, be honest about your actual car usage while signing the leasing agreement. Also, try to get a leasing agreement that provides for lower sales price and higher residual value.
Since we all know that loans can be a tricky business, one should never take a loan related decision without adequate knowledge of the subject. To help you get your car loan with ease, we have compiled a list of things that you should consider before applying for a loan:
Settle for the Best Interest Rates: The first and foremost thing to know before applying for a car loan is that there are NO standard market rates. All banks are at full liberty to charge their own respective interest rates. Further, interests on car loans also vary in terms of floating and flat rates. Even a marginal difference of few points in the rate of interest could make a huge difference to the money you have to re-pay the bank. So, make your decision wisely.
Confirm your Credit Score: The credit score of a person defines her/his repayment ability. As such, it has become the primary criteria for getting a loan sanctioned. A low credit score translates into lower loan amount or higher interest rates! Therefore, make sure you have a healthy credit score before applying for a car loan.
Keep your Documents Ready: While getting a car on loan has become rather easy, it still requires you to complete a good amount of paper work. These days it has become mandatory for banks to follow the KYC (Know Your Customer) norms for granting loans. As such, banks now verify a number of documents and your past credit score before sanctioning you any money. The most common documents that you are required to submit while applying for your car loan are income proof, bank statement, valid address proof, photo id proof, income tax return statements of past years, NOC-in case you have recently cleared your last loan, your credit card statement etc. Make sure you have all these documents in place to avoid any last minute rush or hassles.
Take Quotations: Remember all car dealers have tie-ups with different banks. As such, they quote different rates and other charges. In order to get the best deal on your car loan, it is always better to visit various dealers and get a quotation of their interest rates and other financial charges.
Select the Right Loan Repayment Period: The loan repayment period is the most crucial aspect of any loan. Choose a loan period that suits your budget without adding exponentially to the cost of your car. While a longer repayment period might look attractive, it can actually render your car extremely expensive. So think before deciding on the most suitable rate for your car loan.
Calculate the Loan EMI: Use an auto loan EMI calculator to compute the monthly EMI on your car loan. EMI calculators are available for free on most financial websites or online car-selling platforms. They help you calculate your EMI on the basis of the given interest rate and thereby decide on the most appropriate one for you.
Check the Processing Fee: While banks are increasingly offering car loans at low rates, they often charge hefty processing fees. What makes matters more complicated is the fact that this fee differs from bank to bank and is often levied as a hidden charge. Therefore, you must enquire about processing charges from your bank in advance to avoid any issues later.
Service Tax: Most banks differ on their service tax modules. While most banks charge it as a one-time lump sum, others charge it on yearly basis. It is better to have clarity on this aspect of your loan.
Know about the Foreclosure Penalty: A foreclosure penalty is charged by banks when you repay your loan amount in a lump sum before the actual repayment period. Though getting a loan off your head brings great relief, too high a penalty rate can effectively dissuade you from pursuing any such plan. Therefore, talk to your bank and get a clear idea about their foreclosure penalty rates.
Your car should bring you ease and happiness and not unnecessary worries about loans and lease terms. With the help of above mentioned points, we hope that you get the ideal loan and leasing agreement for your car and take the most beautiful journeys of your life.