Top 5 Common Car Loan Mistakes to Avoid

Owning a car is no more a luxury, but a necessity; especially with the pandemic situation that has made using public transport unsafe. But, buying a car is not that simple as well. Many people find it difficult to pay the full amount upfront and make a cash purchase. In such situations, it makes sense to avail of a car loan from one of the numerous financial institutions that offers quick approvals and easy terms. However, there is a flip side to it too. A lot of people rush to apply for loans without any planning or verifying facts.

Here are the 5 most common car loans mistakes people make and ways to avoid them. With these tips, you can craft the best car buying strategy for yourself.
 

1. Borrowing Too Much

Before you apply for a loan, you need to plan and budget. What is your monthly family income? How much can you spare as a monthly instalment to repay the loan without straining yourself? You will have to keep some reserves for emergencies as well, apart from your regular expenses. First, decide on the amount you can pay every month and base your loan amount on that. Choose a car that fits in that budget range. Do not forget that you will have to spend extra on car insurance, Fast Tag, and maybe some car accessories too. You can also consider opting for a used car, which will come at a much lower price tag. But, be prepared. The used car loan interest rate could be a bit higher than for a new car.

            Also Read: Top factors why going for a used car is a wise option

2. Not Checking Your Credit Score

Any lending institution will be interested in checking your credit score and history; they may be unwilling to offer you a loan if your score is unsatisfactory. You must keep tabs on your credit score and find out what the lender is looking for. The car interest rates may be significantly higher if your credit score falls short of what the financial institution expects. A lower credit score tells the lender that you are a comparatively higher-risk customer. A higher score indicates that you are a stable borrower who repays on time.

3. Choosing a Long Tenure

Different financial institutions may offer different tenures ranging from 1 to 7 years. Unless your monthly income is quite low or you have too many expenses, availing maximum tenure for car loan is not a good idea. The longer the tenure, the more amount you repay to the lender as interest. You could also end up paying more than the car’s worth. Remember, the car value depreciates over the years. You may also feel like changing the car before your tenure is up and that could pose problems.

            Also Read: Guide to Financing Your NEW Used Car!

4. Not Researching the Lenders

With numerous lending institutions offering loans at flexible and attractive terms, it is highly likely that one gets swayed and chooses a lender without proper research. It is very important to compare the terms and conditions, interest rates, tenure, service, speed of approvals and other factors before making a decision. Donot forget to read the fine print, check for hidden costs and charges, and also see if the lender imposes a penalty on pre-closure of the loan. Once you have all the details, study and compare, and only then decide on the lender. Otherwise, you may think you are getting the best car loan in India, when in reality you may be getting taken for a ride.