Nowadays, cars have turned into a necessity rather than a luxury. Our everyday requirements like going to the office, dropping off kids at school, grocery shopping etc. calls for the need of a car. Apart from running everyday errands, cars also facilitate family members to go on trips, bringing them closer. Being able to cover big miles and providing excellent comfort are the features that make a car so special. But, buying a new car can be difficult for a lot of households.
Therefore, used cars have become popular. In 2018-19, almost 4 million used cars were sold. However, even used cars cost a lot. But what if there is a way which enables you to pay the whole value in monthly instalments?
Getting a used car loan is the bridge that enables people from all walks of life to afford a used car. The low equated monthly instalments will not disturb much of an individual’s regular monthly budget. Also, there is no need to wait for years of your savings to add up to the value of the car. You can just use a part of your monthly savings to pay for the monthly instalments of your used car loan. Now there are a few common mistakes that people make while applying for used car loans, which can be avoided.
Mistakes while applying for a used car loan
Not exploring enough options
Plenty of people who are applying for a used car loan for the first time are found to fall for the first option that they come across, oblivious to the numerous other options available in the market. There are multiple car loan lenders offering loans at different used car loan interest rates, terms and conditions. Going for the first option that you find without scrutinising or assessing other options might keep you from choosing a better option available in the market. Hence, make sure you go through every option and pick the one that best suits your needs. There are sites which can make this procedure easy for you by directly comparing the different features of a loan scheme like used car loan interest rates etc. offered by multiple lenders. This will help you shortlist the one that best suits your needs.
Long Loan tenure
Keeping the car loan tenure long might seem like an excellent option at first glance to bring down the equated monthly instalments to a minimum. But, remember that a car is a depreciating asset. Hence, by the time you are done paying the loan, the value of your used car would have fallen to a price much lower than the one you got it for in the first place. Also, the interest that you have to pay increases with an increase in tenure. Hence assess your financial capability of repaying the loan properly to find the appropriate tenure of your car loan. Pick a used car loan tenure that allows you to pay the equated monthly instalments without disturbing much of your monthly budget along with the motive of minimizing the loan tenure as much as possible.
Not assessing the terms and conditions properly
Many people are found to rush to sign the papers without reading the terms and conditions properly. Look for information like grace period which is the extra time given to a borrower by the lender in case he or she is not able to pay the loan in time, without having to pay any penalty fees. Also, some lenders charge a penalty for early pay-off of car loans. It is recommended to go for the loan options with minimum to no early pay-off charges in their terms and conditions. Therefore, make sure that you go through the terms and conditions of the loan properly before agreeing to it.
Ignoring the approved loan amount
A lot of times people are found to look for used car options without taking into consideration the maximum approved loan amount of the lender. All the used car loan lenders have an upper bar set for the approved loan amount that can be sanctioned. It depends on the loan scheme, CIBIL score of the individual, fixed obligation to income ratio etc. There is no way an applicant can get a loan beyond that limit. Hence it is recommended to check the maximum approved loan amount first before looking for options in two-wheeler to know the cost of the two-wheeler that fits your budget.
Sanctioning redundant loan amount
All car loans come with simple mathematics for their interest which says, greater the loan amount you sanction greater is the interest that you have to pay. Hence, you must calculate the exact amount of loan that you require to get your desired used car. In case you have any surplus cash, use it for the down payment and subtract it from the on-road price of the car to get the exact figure of the used car loan amount that you need. This will help you save some extra bucks on the interest.