For most people, cars are your second biggest expense after housing. In case you are planning on buying a new car, have you thought about how you will pay for it? How you choose to pay for the car is a personal choice. However, if you have settled on a bank loan, there are a few things you need to think about. Getting a car loan has been made easier today considering the number of banks that have cropped up and the stiff competition to give attractive interest rates and longer repayment period for the borrowers. We have listed 10 things you need to know before taking a car loan.
Calculate The Interest Rate
It is important that you know how much interest the loan you are taking is going to attract. This is something that you need to do before you even take the loan. Many loan facilities have hidden charges like processing fee and late payment fees just to mention a few. The interest fees also vary from bank to bank and no two banks have the same rate. Conduct research extensively and compare several banking facilities rate before settling on one. Be aware that even a slight difference in the rate will highly influence the amount you will pay back to the back in the end.
Check Your Credit Score
Before you apply for a loan, check your credit score. Confirm that you are not blacklisted by the CRB. Being blacklisted or having a low credit score will mean you can not be given a loan or maybe given less than you initially wanted. It also breaches your trust will the banking facilities. How can they belive that you will pay back the money if you had defaulted before?
Put Necessary Documentation In Order
Getting a car loan isn’t as easy as you may think. There are several papers to be filled out so that your information can be verified. Some banks even need your next of kin details. Amongst the documents you need are the source of income proof, bank statements, post office address, your national ID, KRA pin and even your CRB clearance certificate.
When you are applying for a loan, ensure that you already have the quotation for your car from the dealerships. The quote you get will help you know the amount you need to apply for. Besides, almost every dealership has a partnership with an asset financing institution, therefore walk around and compare the quotations you get.
Choose A Shorter Loan Repayment Period
It may be tempting to get to pick a longer loan repayment period because it feels like it fits in your budget. However, the longer the repayment period the more the amount of money you have to pay. We are all in the business of saving money while we are buying a car and spending more money to pay back a car loan isn’t helpful. It is wiser to have a short repayment period to save more money.
Calculate Your Monthly Instalment Prior To Application
Before you get misled by an attractive interest rate issued on a loan. Ensure you have calculated the EMI (equated monthly instalment). This will help you budget accordingly as you will be able to calculate the actual amount of money you are supposed to pay back before you even apply for the loan. This EMI tool is absolutely free online and will also help you make a wiser decision when choosing an asset finance partner.
Confirm The Processing Fee Amount
Knowing exactly how much the processing fee is will help you a lot in your bid to get car financing. Most banking facilities impose a huge processing fee on their loans and you only notice this after the whole process is complete. Ask around and be prepared to pay more in case you settle for this facility.
Calculate The Service Tax
Ask your bank if they charge service tax and how much it is. It is also important to know if the amount will be deducted yearly or if its a one-off fee. That way you will know how much to put aside for this fee.
Research On Foreclosure Penalty
Many people do not know about foreclosure penalty. Foreclosure penalty is a charge imposed on you when you repay a loan earlier than the time agreed upon. You may think that the bank is happy you have paid back your loan before its time. However, this is not always the case. You need to know from your bank how much the foreclosure penalty is. Every bank rules on this penalty is different and some banks may not have it. Just ask your bank how they deal with foreclosure penalty before you take the loan.
Look Out For Loan Offers
Before you settle on a car loan, look out for attractive offers. Some financing facilities may be able to offer you attractive deals. There is no shame in landing a good bargain. Besides, the money you save may be used in something else or better still, you can get a better car for much less than you initially thought.
Generally, these ten tips will help you get a better deal on a car loan. It is important that you complete all the required formalities before proceeding to apply for a loan. That way you save yourself both time and money and still end up driving away with your new car. In short, be wise when you are choosing your asset finance partner.