If you are planning to buy a new vehicle then a car loan can help you finance that. Today, it is quite easy to avail of a car loan because most of the process of acquiring a loan can be completed online. However, people still keep making the wrong financial decisions regarding taking a loan. Here are a few mistakes that you must not commit.
- Not comparing lenders
This is a very common mistake that almost all people make, when applying for a loan. Either they go for a lender whose advertisement they like or they listen to their friends. However, the best way to find the right option is to compare different lenders. You have the Internet at your disposal and that makes the process simpler. You can compare the car loan interest rates and loan tenure among different lenders to find the one that is most profitable for you.
- Not knowing your credit score and Fixed Obligation to Income Ratio (FOIR)
Many people have no clue that any lender can investigate the financial condition and loan obligations of any applicant. Not knowing your credit score and FOIR can lead to a rejection of your loan because the lenders expect you to have a certain amount of score to consider you trustworthy. Your credit score shows your credit history and if you have paid your interests in time for your previous loans. The FOIR shows what your current financial obligations are and how much money you make every month. This determines if you will be able to repay their loan. It is important that you have a favorable record.
- Zero down payments can be tricky
When taking a car loan, the zero down payment option can surely attract you. However, it is strongly suggested that you try to avoid that. With no down payment loans, you will have a larger debt and interest rate. The value of your car will decrease with time but the amount of your debt will not. Hence, try to pay a portion of the car’s price while buying to lower the payable loan amount.
- Do not go for a long tenure
A long repayment tenure for any loan might seem like a smart idea but it really is not. The long tenure means a lower car loan interest rate. However, it also means you will have to pay the interest for a longer time duration. So, by the time you are done, you would have paid way more than the actual loan amount. A short tenure with a slightly higher interest rate is always better.
- Do not take a loan for enhancing your car
Who would not want a good music system or a better air conditioner for their new car! The lenders offer loans on these accessories too. However, that increases your interest rates. Buying them from your pocket will cost you less.
Finding and buying the right car is already a challenging job. Do not make the process tougher by making the above mistakes while applying for a car loan.
