Getting A Car Loan Soon? Make Sure To Avoid These 7 Mistakes!
09 May 2022
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These days, cars have become more of a necessity for us than a luxury. As a result, there are about 1.4 billion cars on the road in the world today! A car is more than just a means of transport for many. But purchasing your dream car can be quite expensive. Thus, many people take a loan to finance the purchase of their dream vehicle. Though the advancement of technology has made it easy to procure a car loan, first-time applicants are prone to make a few mistakes that can cause their loan application to be rejected. However, to help you enjoy a smooth and quick loan application process, here are 7 car loan mistakes to avoid:
Not knowing your CIBIL score
Your CIBIL score indicates your creditworthiness. It is a numeric score that is calculated based on your credit history and past debt repayments. Your CIBIL score plays a quite important role in the evaluation process of your loan application. Having a low CIBIL score will not only make it hard for you to procure credit, but will also increase the interest rate that the lender levies. Hence, it is quite important to do a CIBIL score check before applying for a car loan. This will help you understand if you are eligible for the loan and even help you get the loan at an attractive interest rate if your CIBIL score is great (above 750).
Not choosing your loan tenure smartly
The tenure of your car loan is directly proportional to what the loan will end up costing you. This means that the longer it takes for you to repay the loan, the more interest you end up paying on the borrowed amount. However, if you choose a relatively short loan tenure, you will have to pay a higher monthly EMI amount. Hence, it is quite important to understand your numbers and choose a loan tenure that helps you clear off your debt with ease and save money on interest. The best way to achieve this is by using the online car loan calculator available on Bank of Baroda website. The car loan calculator is free to use and hence, allows you to check your monthly EMI amounts for different combinations of loan tenure, interest applicable, and loan amount.
Skipping the down payment
The down payment is the portion of the car’s price tag that you pay from your pocket. The bigger the down payment, the lesser loan amount you need from the lender. While many lenders require you to make a minimum percentage of down payment, a few loan providers offer to help you purchase your preferred car without any upfront cost. While zero down payment can be a lucrative option, it increases your total loan amount and, as a result, requires you to make higher monthly EMI payments. Thus, one of the best car loan tips is to always try to make a down payment on your vehicle.
Forgetting to try preapproved loans
A preapproved loan helps you quickly receive credit from the lender without going through a tedious paperwork process. It offers you an estimation of the interest rate applicable to your debt, the maximum loan amount you can procure, and the maximum loan tenure you can choose. This makes car shopping much easier as you have a clear idea of your budget while finalising your ride. Though preapproved loans are quite beneficial for the debtor, the lender usually only offers these loans to individuals with a good credit history. Furthermore, preapproved loans usually require the borrower to fulfil certain criteria before the lender can sanction the loan amount, such as making a certain percentage of down payment (Margin on Vehicle) .However, since preapproved loans can make your car shopping easier, it is advisable to be a little flexible in your finances and try to procure a preapproved loan if possible.
Borrowing more than what you can afford
It is quite exciting to buy a new car, especially if you are doing it for the first time. Plus, the facility of a car loan makes affording your dream ride very easy. So, it is quite possible to get carried away and apply for a loan amount that is more than what you can afford. This can make it hard for you to manage the monthly EMI payments and thus, eventually compel you to default. Hence, it is better to understand your monthly expenses before starting your loan application process. You can analyse your DTI to get an idea about the same. DTI is the debt-to-income ratio; it shows how much percentage of your monthly income is allocated towards your debt repayment. The higher you’re DTI, the lower should be your car loan amount. One way to cut back on the loan amount is to minimise the accessories you choose to take with your vehicle. Take necessary ones like sun shade covers, but try to cut down on stickers and other accessories that offer mere cosmetic value.
Not reading the terms and conditions of the loan
Every form of debt comes with certain terms and conditions, even a car loan. It is important for you to know a few terms and conditions of your car loan, such as the required down payment, the type of car loan interest levied by the lender, and the requirement of collateral, among other parameters. All such details are mentioned in your loan agreement and are required to be understood by you before signing the document. Reading the terms and conditions of your debt will help you plan your repayments and clear your loan without any hassle.
Not comparing the different car options
It is not only essential to understand your budget for financing the purchase of your vehicle, but also crucial for you to know the amount of money you would require for maintaining your ride. If you choose a car that fits your purchase budget but offers low mileage or requires frequent servicing, you may end up spending a lot of money on maintaining the vehicle. Due to this, your monthly budget can take a hit and make it difficult for you to make your EMI payments. Hence, it is better to compare the different available car options and choose a vehicle that fits your purchase budget and has affordable maintenance costs.
Bank of Baroda offers car loans at attractive interest rates with minimal processing charges. We can help you finance up to 90% of your car’s on-road value through the Bank of Baroda car loan. We have taken the application process online, so that you can get funding from the comfort of your home through our intuitively designed website. Our car loans also have no foreclosure charges to individuals, so you can plan your finances well as per your evolving needs. Enjoy speedy disbursals and quick loan processing too! Get in touch with us today to know more.
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Know How to Check Your CIBIL Score for Car Loan?
The Credit Information Bureau (India) Limited (CIBIL), now TransUnion CIBIL, is one of the 4 credit information companies. It is licensed by the Reserve Bank of India to collect and maintain the credit information of borrowers. Banks pass on your debt information to TransUnion CIBIL, which then collates the data to form an indicator to measure your credit, i.e., the CIBIL score.
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