6 Things to Consider Before Applying for a Car Loan
May 29, 2020 20:41
Most people, when considering buying a new car, look to take out a car loan.
Just as you would have spent a reasonable amount of time researching the features and type of car you would want to own, it is equally important, and you do a thorough dig on the different car loan options available to you.
As you think about applying for a car loan or begin comparing car loans, here are six things to consider.
Eligibility criteria and documents required
Lending organisations have varying minimum standards that prospective borrowers must meet before their loan applications are approved.
You may want to check with your lender to be sure you qualify for a car loan.
While at it, be sure you have all the necessary documents ready.
For instance, lenders may expect you to present a proof of income, your ID, proof of residence and documents indicating any insurance coverage you may have.
Credit score and financial history
Your credit score and economic history are the two most important factors lenders check when deciding whether to approve your loan application or not.
How much you pay in interest is also affected by your credit score, since with a good score, you have more flexibility to negotiate favourable loan terms.
You may want to consider reviewing your credit history a few months before applying for the loan to see if there is anything you can do to improve your score.
When applying for a loan, you are expected to make a deposit or down payment for the car.
Keep in mind that the higher the down payment, the lower the loan and monthly repayments you will make. And, the lower the initial deposit, the bigger the loan and amount you get to pay every month.
So, you may want to crunch your financial numbers to come up with a down payment amount that ensures you can comfortably pay back the loan every month while also taking care of your other bills.
Length of term
How long do you intend to carry the loan? Usually, your lender will offer different term lengths. The term length is the number of months or years the loan is spread across.
A more extended repayment plan means you carry the loan for a longer time but pay a smaller amount of money each month. The downside, however, is that you may end up paying more interest if you select a longer repayment term.
When deciding the length of terms, be sure to consider your current financial situation, so you choose wisely, which option allows you to save on interest while keeping monthly repayments affordable.
Interest is the amount you pay to the lender for borrowing from them. You are expected to pay the accrued interest in addition to the original amount borrowed.
The interest you pay on loan depends on several factors, including your credit score – a higher credit score means you can potentially negotiate a lower rate.
So be sure to shop around for lenders with favourable interest rates before applying for a car loan.
Before applying for a car loan, you may want to confirm whether the lender penalizes you for early payment.
You see, while you may have agreed on a set term for the loan, you may decide to pay it off earlier, so you want to be sure, the lender does not penalize you for that.
An effective way to find any hidden charges before signing the loan contract is to read the fine prints and terms and conditions.
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