Despite being a luxury, a car has the advantages that make it an enticing option to most people considering getting a car. If you are in your early 20s, you may crave to get a vehicle of your own to ease your travelling-related woes and provide you with an opportunity to go on trips or anything else. However, cars are not cheap. In order to help you with your finances, you can avail a vehicle loan from financial institutes to assist your pockets. A vehicle loan is easy to obtain and can be obtained for a sum upto Rs. 10 lakhs.
Certain questions to have clarity about before applying for a vehicle loan:
- Get your credit score checked:
Source of income, credit score and other factors are used to determine the loan interest rates. For example, if an individual has a high income but their credit score is lacking, then their interest rates will be higher, or the tenure for the loan will be less.
- Assess your EMI affordability:
While taking a vehicle loan, one should be cognizant of all the mandatory monthly expenses. The best practice is to deduct these mandatory expenses from the stable monthly income, and then the balance income can support in paying off the EMIs. Once the borrower is aware of his EMI affordability, he can select and customize the terms per his requirements.
- Processing Fee awareness:
The vehicle loan processing may go up to Rs. 10,000. During certain periods of the years, the vendor may suo moto reduce the processing fees. However, you need to be vigilant with respect to the processing fees being waived off. Sometimes, vendors cheekily adjust the waived-off processing fee in the interest payments.
- Check for foreclosure or prepayment charges:
By pre-paying your loan, you may get a chance to have your interest charges reduced. However, many vendors levy prepayment charges on vehicle loans. These charges can go up to 6% on your outstanding principal amount. Some vendors also restrict the number of prepayments you can make. Therefore, be wise while choosing the vendor that provides vehicle loans with the least restrictions.
- Loan to value ratio:
LTV is that proportion of the vehicle’s purchase price, which the lender will finance. If you can afford to pay a higher down payment, that will allow you to get shorter tenure as well as lower interest rates. Make sure to calculate your down payment amount and the monthly interest you can afford. If not done wisely, these may lead to exhausting emergency funds.
- Checking your savings:
Before taking a new loan, check your contingency fund and if you have sufficient savings for emergencies and to maintain a new car. The cost of car maintenance can get really high with regular servicing, the cost of repairs, and the replacement of parts, particularly if it is a luxury car. Therefore, you need to calculate the cost of car maintenance, prices of diesel/petrol/gas, car insurance premiums, etc. and ensure you have sufficient savings to manage these expenses regularly.
Once such factors are considered, one may choose to go ahead with the application of a vehicle loan.