How to avoid common auto financing mistakes
Buying a car in a country like India is still considered a big decision. Considering the fact that buying a car is still an aspirational purchase, consumers are often tempted to rush in without considering the potential pitfalls that are associated with the process.
Financing a car can be stressful and if not checked properly, a consumer tends to make mistakes that could cost him or her big in the long run. Those are majorly common mistakes and can be avoided easily.
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Here are some tips to avoid the common mistakes while purchasing a car and availing finance for that.
Know your credit history
Not knowing the credit score before applying for a car loan is a big mistake. A consumer who knows his or her creditworthiness gets a general idea of which loan terms he or she qualifies for and what to expect going into loan negotiations. If the credit score is low and there is no hurry to buy, the consumer may decide to take time to improve the score in order to get a better interest rate. A consumer can get his or her credit score easily for free on the credit card statement or online account.
Don't choose a longer loan term
It might be tempting for a consumer to choose a longer loan term as it lowers monthly payments, but that increases total interest. Longer terms usually come with a higher interest rate that the consumer has to pay for a longer period. Also, the longer loan term means the car's value decreases to the point where the consumer goes upside down on the loan. Usually, 60 months is considered the maximum term length one should consider.
Get preapproved loan
Solely relying on the car dealer for a loan might result in missing out on better options elsewhere. It is always best to check for a pre-approved loan from different banks, credit agencies and online lenders. This should be done before buying a car because it will give the buyer a better idea of how much loan he or she can get approved and the rates available for the consumer. This process usually requires a soft credit enquiry and doesn't impact the credit score.
Always calculate budget
Before taking out a loan, the consumer should review his or her financial situation and make sure of affording to pay back the debt. You should plan how to repay the monthly loan from your budget so that you don't end up falling behind the payments. Not doing so might result in you ending up paying hefty amounts in unpaid interest and that could significantly impact the credit score damaging future loan prospects.
Compare and choose
If you simply take the first loan offered, you could be missing a better deal. It's best to check and compare the terms being offered by a variety of lenders. Some may offer lower interest rates or different other options for term lengths.