Friday, 3 August 2018

How to use the Compare Option to Decide on Best Car Loan

Abhishek wants to buy a new car, this being his first car he is very excited and wants to take the decision after careful consideration. As he began to compare the various brands and models he realized that there are so many factors that require attention. He did not get bogged down and did manage to find what he wanted and also something the fitted within his budget!
Just like buying a car is a decision that requires careful comparison between options, so does choosing the right lender too! You need compare the loan options available before choosing the right one.
Comparing Car Loans to Choose the Right Option:
If you are looking for car loan you would know that there are numerous lenders in the market that can be approached. So how do you decide which is the best option for you? Here are a few factors that can help you make decision:
  • Interest Rates:
Needless to say interest rate is the first and usually the most crucial factor when it comes to choosing a lender for any kind of loan. So do look at the rates at which car loans are offered by various banks/NBFCs before you choose one. Interest rates range from 9-5% to 14% depending on which FI you approach. It is important to mention here that if you have a good credit score then you have an edge. You can approach any lender without being worried about your loan application being rejected due to a low score and you can negotiate a good deal for yourself too if you have a good rating.
  • Processing Charges:
Processing charges as is obvious from the name are charges that are levied by the FI for getting the loan application processed. They are not similar across board, some may charge a flat rate irrespective of the loan amount, and some may charge it as a percentage of the loan amount while other may not charge any fee at all. Obviously you would like to approach the one who does not charge any amount as this fee could burn a hole in your pocket but bear in mind that other aspects also need to be considered when making this decision.
  • Loan to Value Ratio:
Loan to value ratio is the amount of loan that you can get as a proportion of the asset value. This again varies across lenders. LTV defines the maximum loan that you can get as a percentage of the car value, the rest you need to pay from your own pocket. Thus you should have the rest of the amount saved to make as a down payment. If you have a larger amount saved you could opt to take a loan lower than the LTV ratio too, this will reduce your overall interest cost. If you have no savings to make a down payment then there are few FIs that offer 100% finance but you will have to meet the car loan eligibility set by the lender in order to get the loan sanctioned.
  • Prepayment Charges:
Prepayment charge is an amount that may be charged by the lender in case the borrower chooses to pay the loan amount before the term ends. These are mentioned in loan agreement and may be also mentioned in product details. It is a good idea to have clarity about these and compare the charges that would be levied by various lenders before choosing one. While some banks may not charge anything at all for a prepayment, some may not charge anything after some time has elapsed while others may charge an amount as percentage of the outstanding amount.
So buy your dream wheels but before doing that compare the various options available before choosing one.