Choosing the right car loan is as important as buying the car itself. While buying a car, you have to make sure that it meets all your requirements and is within your budget. The same goes for car loans. Although it is relatively easy to get a quick loan for your car, you must make sure that you avoid making mistakes in picking the one best for you.
The most important thing you need to do before applying for a loan is proper research instead of looking for an instant loan. You need to closely study the terms and conditions to save yourself from paying higher interest rates or other hidden charges. We have listed some of the common mistakes you should avoid while applying for a car loan:
#1 Not Searching For the Best Lender
Looking for the best lender when taking a loan is one of the most important factors to get the best deal. Various lenders offer various interest rates, and a higher interest rate means more outstanding repayment. So before you apply for a loan, conduct thorough research on all banks and Non-Banking Financial Companies (NBFCs) and choose the lender that provides the lowest interest rate. You can also look for a cash loan online for better results. Make sure that you take other aspects like repayment tenure, required documents, repayment options, and eligibility criteria into consideration.
#2 Not Knowing Your Credit Score
Your credit score plays a vital role in your car loan approval. A higher credit score allows you to negotiate a lower interest rate with the lender. A credit score of 750 to 900 will make it easier for you to get your loan approved with a lower interest rate. If your credit score is lower than 700, the lender might refuse to give you a loan. So before you apply for a loan, maybe check your credit score.
Or even better, pick a car loan that doesn’t rely heavily on credit scores. Like EarlySalary.
#3 Not Having Any Other Financial Source
Always make sure that you are not solely relying on the credit offered by a lender. It is always advisable to have other emergency options so that you can pay the down payment fee, insurance fee, and registration fee from your savings. Lenders often suggest taking up personal loans along with the car loan to cover these expenses, but taking a personal loan will add to your debt pile.
#4 Not Selecting a Short-Term Loan
Borrowers often select long term loans because individual EMIs are cheaper than short-term loans, but in the long run, the total interest you end up paying will be astronomically higher. Short-term, instant loans are recommended so that you repay the loan as early as possible. However, you should make sure that you can afford to pay high EMIs in a short period because otherwise, your credit score will take a massive hit in-case of defaulting on an EMI.
#5 Buying Unnecessary Services
Lenders often try to sell additional services like life insurance schemes and warranties, which would pay off your loan in case of your death or if you’re disabled. Although these schemes are beneficial, they generally benefit the lender more than the borrower. These are often included in the fine print, so make sure that you check in with your lender before signing the papers.
#6 Focusing Solely on EMIs
Focusing solely on EMIs can often hurt your overall financial health. Low EMIs tend to attract borrowers, but it is not the only thing that you should consider. Before taking a quick loan, make sure that you calculate other factors like tenure duration, time to disbursal, processing fees, early repayment penalties, late EMI fees, etc. because collectively they can cost a hefty amount.
Making any of these mistakes could potentially harm your finances. For smooth and hassle-free borrowing, avoid making these mistakes, and always do your due diligence and research all available options. Sometimes, the most stress-free options are EarlySalary car loans, your partner in enabling that dream vehicle quicker, and without hassle.
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