A 27 year old man has got his first promotion, and decides to buy a car. After all, who does not crave the comfort of suede seats and air-conditioning, instead of sweaty buses and long queues at ticket counters? However, instead of spending a large chunk of his savings on one purchase, he decides to take a loan, which he can pay off at comfortable intervals via EMIs. Like most of us, he often gets mails and SMSs offering car loans and 0% interest personal loans. But every dealer he visits claims to have the best rates, making him even more confused!
Most automobile customers opt for car loan, because it is a short to medium term loan and getting it helps you prevent putting a dent in their savings. This is true even for those have considerable disposable income. However, many purchasers are informed of their financing options by the dealer in an off-hand manner, which creates further confusion. The following are the top 5 top lies about car loans that are spread by the deals.
1. You can get 100% financing for your car
Many dealers advertise 100% financing, which basically means the loan will cover the full cost of your automobile. This is usually not the case and if it is, such a loan will feature a much higher rate of interest. A majority of auto loans can be availed for up to 90% of the invoice value of the car. That means, if you want to buy a car for Rs.500,000, at least Rs.50,000 will have to come from your own pocket. A few financial institutions may provide 80% or 85% financing as well, depending on your previous relationship with the lender and other factors such as your individual credit score.
2. You should go for a 0% interest loan
Many dealers try to tempt customers with 0% interest financing, but an interest-free loan is not always the hassle-free, economical deal that it promises to be. Often, the maximum term for interest-free loans is less than 3 years, which is too short to provide sufficient financial flexibility to the borrower. The down payment may also be increased to reduce the loan amount. If the dealer offers 0% interest auto-loans, make sure he does not inflate other charges to compensate.
3. Apply for loan through car dealer or it may be rejected due to your poor credit score
The impact of your credit score cannot be influenced by your auto-dealer. While it is generally true that a poor credit score will mean that you pay more interest, requests for auto-finance loans are rarely rejected as it is a secured loan with the car as collateral. The creditor will take additional factors like employment history and income level, into account before fixing the terms and conditions (such as interest rate and tenure) of your car loan.
4. You should apply through a dealer to get the best interest rates
Definitely not true. Applying through a dealer means all your negotiations take place with the seller of your car, and not with your financial provider. This may not always be the best way to go, as it is unlikely that the dealer will ‘shop around’ trying to get you a better deal. To get the best deal do some leg work and compare the different car loan options being offered. The simplest way to achieve this goal is to log on to Paisabazaar.com and input a few key details in order to get the best deal on your car loan.
5. You cannot get a loan for a used-car, so it is better to buy a new one
If a new car will earns more profits for the dealer, then that is what he will try to sell. But used cars, which have been not been used for more than 1 or 2 years, may work just as well as a new one while costing a lot less. Many banks and financial institutions in India have started providing give loans for used cars—just make sure the date of manufacture of your vehicle falls within the lender’s pre-determined parameters. In conclusion, following are a few things to keep in mind Going for a longer repayment period, will increase your total payment amount as you will keep paying interest for the entire duration.
If you opt for a lower EMI (equated monthly payments), the final amount will increase as a lower EMI translates to longer repayment tenure i.e. higher total interest payouts.