Publish Date - September 06, 2022
Author: Staci Bailey
Car Loans and Bankruptcies: 8 Things to Consider
Here are 8 things to consider about car loans and bankruptcies: your budget, pre-owned or new car, specifications, interest rates, lending documentation, loan repayment terms, foreclosures, penalties, service tax, processing fees, and offers.
Purchasing a four-wheeler is no longer a luxury nowadays nor a status symbol. Rather, it’s become a necessity. In densely populated cities and towns, commuting in public transport is challenging and many prefer the comfort of their private automobiles.
Unfortunately, not everyone has the means to purchase a car instantly. And while some car owners purchase their automobiles after months of savings, most car owners use reliable car financing options. Banks, credit unions, and financial institutions are top financiers.
And nowadays, online lenders are joining this hierarchy of lenders by providing reliable, accessible, and instant car loans and financing.
Here are eight things to consider before securing a car loan:
1. Decide Your Budget
The first thing to consider before signing a car loan is how much you want to spend on your new (or secondhand) ride. Have a budget in mind on how much you can comfortably spend without compromising on your lifestyle – utilities, rent, taxes, and deductibles.
When deciding how much to invest in your new ride, remember that this isn't a one-time investment. Alongside paying a down payment or any other lump sum, consumers incur additional expenses like car maintenance, fuel, premiums, and insurance.
So, when deciding your budget, consider both the purchasing cost and additional maintenance expenses.
2. New or Pre-Owned?
After deciding how much you want to spend on your car, the second step is to decide if you want to purchase a pre-owned or a new model. Most people settle for a pre-owned mode as their first car and once they get the hang of driving, they purchase a new car.
However, when purchasing a pre-owned model, remember that it has a relatively higher maintenance cost than a new car. Therefore, you must analyze your budget and weigh out your priorities to determine whether you want to purchase a new car or an old model.
3. Decide Your Car Specifications
Another crucial thing to consider before signing a car loan is to decide your car's specifications. With so many models out here, it's hard to find one model that satisfies the buyer's every expectation.
So, before plunging yourself into a long-term financial commitment, ensure you get a car that suits your taste, style, and preference.
A buyer should write down their preferred specifications such as sunroof, color, safety features, sound system, heated seats, seating, performance, and automated gears.
Besides, you must decide whether you want to purchase a petrol-run car or a diesel-operated one. Knowing whether you want a petrol or diesel car will help you narrow down on cars with specific features and fit specific budgets.
4. Search for the Best Interest Rates
Compare different interest rates offered by financial institutions before getting a car loan. Banks, credit unions, and online platforms have different interest rates and payment plans.
And since there are no standard interest rates, even the slightest difference can have the biggest impact on the total amount that you'll pay your car lender. The interest rates can vary from flat to floating and from vendor to vendor.
So, ensure you research carefully before settling for a vendor.
5. Complete Lending Documentation
Every lender has a list of financial and credit requirements that borrowers must satisfy before they qualify for loans. Lending requirements are captured in formal documentation to demonstrate a borrower's financial stability or fiscal health.
So, ensure you fill in the required documentation before visiting a lender. For instance, ensuring that you have good credit, visiting different lenders to get contract terms, and contacting your credit card provider to correct any errors are crucial steps.
While accurate and complete documentation guarantees faster processing of your car loan, a pre-approved car loan can work as additional leverage when negotiating with a car dealer. You'll be able to bargain for a few fees and more add-ons when signing the car deal.
6. Loan Repayment Terms
The loan repayment terms are the most important aspect of a car loan. While some car lenders may influence you to settle on a particular plan that seems attractive to you, it may be financially detrimental in the long term.
For instance, a car loan officer may propose a small EMI for a long, say seven years. However, if you calculate the loan repayment for the seven years, you may be in for a rude shock.
It's advisable to select the minimum loan repayment tenure that will save you money in the long term.
7. EMI, Foreclosure Penalties, Service Tax, and Processing Fees
These days, most websites offer free calculators that you can use to calculate your EMI and plan for your EMI based on your interest rates. Calculating your EMI will help you decide the best interest rates for your car.
In addition, identifying different processing fees as different lenders offer different fees, and comparisons can help you make an informed business decision. In addition, you need to look at the service tax and identify whether paid on a lump sum or a yearly basis.
The final important thing you need to investigate is the foreclosure penalties. Many car buyers are unaware of foreclosure clauses, and different lenders have different foreclosure rates and terms. So, it's critical to choose your lending institution carefully.
8. Look for Offers and Schemes
Almost every car loan lender offers attractive deals and schemes. You can easily bag a customized deal and obtain a 3% finance scheme when armed with a sound credit profile. So, it's advisable to scrutinize different lenders and car loan providers to compare deals, offers, and schemes for loan repayment.
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