5 Tips when Applying for Car Loans
In a typical home arrangement, purchasing a motor vehicle is next in line after the purchase of a house.
10:36 28 October 2020
Many people often struggle with the decision of purchasing the car through cash or a financing plan. This decision most often has the potential of ruining your financial stability, hence should be taken seriously. You should carefully assess all the available options to avoid regretting the decision you make later.
Majority often prefer taking a loan. However, if you opt to purchase the vehicle through car loans, there are various researched factors worth taking into consideration before you append your signature on that loan application form.
Successful vehicle loan processing has been made possible due to several flexibilities between car dealers and financial institutions. The competition to convince prospective car buyers to take up their packages has been extensively refined over the years. Friendly interest rates and longer repayment periods on offer from the respective partners serve as a clear indication of the stiff competition existing in this sector.
The entire car financing process can be exhaustive and time consuming. Before smiling to the dealership then driving home with your new ride, read through this list of five tips to consider when buying your car through a loan.
- Ensure to Place a Down-payment and pay for Extras from the pocket.
When purchasing an asset through loan financing, maintaining the value of the asset lower or at the same level is vital for optimum results. When making a vehicle loan application, placing a down payment of between 20% to 30% helps in ensuring the value of the loan is maintained below the value of the car. Therefore, you owe money worth the car value.
Some dealers and financial institutions make the deal even more lucrative. They disregard positive credit scores which act as a negotiating bait, therefore not seeking a car buyer to make any down payment. The move translates to an attractive deal most prospective car buyers fall for.
Driving home with a new car whose debt is more than the car value is too risky. This will make the situation more complicated at the time you wish to dispose the vehicle. This is because should you face financial challenges and decide to sell it, its market value at the time will be way lower than the loan owed. This is primarily driven by the interest accrued by the huge loan. The situation could have been averted through a down payment at the application time.
Besides, purchasing a vehicle on loan is coupled with inevitable miscellaneous costs. These include sales tax, transfer fees, negotiation fees, legal and registration fees. To safeguard yourself from future financial challenges, find out the fees likely to be incurred and pay them from your savings. Agreeing with the dealer or financial institution to include the costs in the loan increases the financial obligation you ought to bear. It is only the loan value that increases rather than the car value.
- Enquire on your Credit Rating
A credit rating scores a person based on their credit history with various financial institutions or dealers within a certain period. Today, car dealers and financial institutions refer to your credit rating at the time of application. This will determine your viability for the loan. The periods of review maybe three months, six months, one year, or even two years.
Referencing the credit score of clients applying for loans is a general practice with no shortcuts, especially for established dealers and financial institutions. A poor score extensively reduces your chances of having your vehicle financing application approved.
However, some dealers and financial institutions barely look at the score when reviewing motor vehicle loan applications. Depending on the type of dealer or institution you are dealing with, you could be lucky to have your application approved despite having a poor credit rating. Check out the various credit partners within your reach for assistance.
Understanding your rating and factors affecting it can help you improve your rating ahead of time before submitting your application. Some of the ways to improve a negative score would be clearing unpaid debts and requesting support in updating the respective credit scores.
- Compare Loan and Sales Quotes
The utmost goal in every expense is saving. Therefore, engaging various dealers and financial institutions to get their quotes and discounts is a wise strategy that could end up saving you some coins. Different dealers and institutions offer competitive financing rates that are worth exploring.
In the market, there are several different financing plans you can come across. For example, you can discover a dealer that is offering cheaper interest rates and car prices than financial institutions. The opposite could equally work; in favor of financial institutions. So why not invest your time in researching the best deals available in the market to save you some money.
The interest rates offered are influenced by various factors such as economic times, seasons, credit rate, government policies and age of the vehicle, among other factors. Ensure to evaluate each of the mentioned factors before negotiating for a better interest rate for your loan.
Apart from comparing the loan offers at your disposal, evaluating motor vehicle sales quotes may also save you from expensive financial obligations. In the market, there has been an uptake of used cars compared to brand new cars. The used units are considered more reliable considering availability on inspection certificates that outline the state of the car at the time of purchase.
Car dealers price their units based on various factors such as the age of the vehicle, features and the business market rating. The price difference can be quite substantial; to the tune of $1,000 to $2,000, an amount a patient car buyer would end up saving. However, some compromises could be worth making if it results in improved car value rather than the loan value.
Some of the compromises include safety features and general car performance. Understanding your need for the car helps in determining the extent to which you could turn a blind eye. Ensure you bargain the price to the lowest possible. This is because the agreed sale price informs your monthly repayment amounts and period of repayment.
Rather than buying a new car, especially if you have a limited budget, purchasing a used and well-maintained car could contribute extensively to reducing the overall financial obligation in a vehicle financing arrangement. Comparison is the key to reduced financial obligation.
- Select a Short-term Repayment Period
In the financing field, the longer the repayment period the more expensive the debt is. The vice versa is true. However, a stretched repayment period leads to budget-friendly repayment amounts, unlike shorter periods. The decision presents a double-edged sword that requires the car buyer to look keenly on a short term yet pocket-friendly option.
Applying for a long-term repayment period is lucrative considering the low repayment amounts. However, they present a situation of higher interest amounts and a stretched repayment duration. This is an option you should endeavor to avoid. Consider the shortest repayment period possible based on your income and ability to save money.
Most car dealers and lending firms insist on pushing for long term repayment terms when discussing loan arrangements with prospective clients. They tap into your soft spot of looking for pocket-friendly repayment amounts while luring you to expensive deal without you noticing.
When making the decision, look for shorter period loan repayments with reduced monthly rates. We advise considering loan packages that are period friendly, allow down payments while offering the lowest interest rates in the market.
Most lending firms offer vehicle financing of about 60% to 70%. The buyer is, however, required to deposit the balance. Work with the financing plan to your advantage to reduce the repayment period.
- Calculate the Interest Rates
Researching on the prevailing interest rates across car dealers and financial institutions help extensively in determining the cost of taking financing. It is best practice to calculate the interest amount using available market rates before approaching any lending partner for vehicle financing.
Important to note, most loan packages come along with undisclosed charges that include negotiating and late repayment charges. The fees vary from one institution to the other. The most common determinant factor is whether the vehicle is old or new. Sufficient research on the different interest rates in the market is therefore highly recommended to protect you from unbudgeted costs.
Interest rates calculators are readily available on the internet. Ensure to search based on the country you live or plan to apply for vehicle financing. Interest rates can range from 2.9% to 18%. Remember slightest variance in the fees has a financial implication on your liability.
Making an application for car financing is readily accessible online on car dealers and lending agents’ sites. Average monthly repayment rates may begin from $300. The deposits can range from $400 to $800 for slightly used vehicles. Ensure to request for inspection certificate and maintenance history before signing off the loan application