Six Crucial Things to Evaluate When Applying for Auto Loan
Six Crucial Things to Evaluate When Applying for Auto Loan
Posted on July 3, 2020
Investing in a four-wheel vehicle is no longer being done for flaunting one’s status symbol. With the growing needs of family and traveling, it has become more of a necessity. In today’s times, if you are living in densely packed cities, possibilities of convenient commuting through public transports are almost none. So, in that case, every human looks forward to enjoying the comforts of their own vehicle instead – doesn’t matter, whether it is a used car or a new one.
Of course, car purchases are significant investments; thus, one must explore the market well before making a final decision. And, interestingly, these days, there is less to stress over the pricing of the car models as there are easy financing options available at auto dealerships. However, to ensure that your car loan doesn’t become a worrisome liability, you need to give a careful look to the following mentioned aspects –
- Budget
You must take into account your current monthly budget and work out on how far you can extend it before approaching a car dealership or agency. You must precisely determine how much you can allocate for this big buy. Chalk out the lump sum money required at the time of the purchase along with interest payment and other expenses such as maintenance, fuel cost, and insurance premiums every month.
- Credit Score
While assessing your car finance application, the first thing that the lenders (banks, institutions, or dealerships) examine is your creditworthiness. Many lenders offer quick pre-approvals based on a good FICO score. They may also happily agree to low-interest rates just because your credit report is shining bright. So, develop a habit of making timely credit payments and request that complete report from the credit bureaus at least six months prior to filing your application of the car loan.
- Interest Rate
Different lenders charge different rates on car loans depending on the car model, credit score, or the repayment capacity. Some even have preferential rates for the customers who have applied for a loan with them before. Therefore, check with your prospective lender for the rate he is offering and compare it with other institutions in the market. The motive here is to gain maximum benefit by striking the most cost-effective deal.
- Loan to Value Ratio (LTV)
LTV determines the proportion of the car’s value that can be financed by the lender. The remaining amount is the down payment money that has to be paid from your pocket. No lender lends the entire purchase price of the vehicle. The higher you pay from your funds, the lesser you have to deal with the hassle of interest costs. However, it is only 5-10% that you have to arrange yourself, so there is nothing major to exhaust your emergency funds.
- Processing Fee
Usually, most auto loan companies charge a fee for processing your application and handling the paperwork. This amount varies according to your loan amount, tenure, and down payment. So, seek detailed information about these charges and see if any of them is open to negotiate or reduce the rates. You can surely find plenty of lenders that are open to waiving off their processing fees during festive seasons.
- Foreclosure Charge
These charges are paid in case you are interested in repaying your entire loan amount before the end of tenure period. This is basically a route taken by those people who wish to reduce their interest costs by making early payments. But, there is always a specified cap on the number and amount of prepayments one can make in a year or entire loan period. So, choose the lender that presents least restrictions in this regards.