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Car Loan Tips
January 8, 2021● 5 minute read●
You’re in the market for a new car but confused to how to fund that asset. Luckily, times have changed with a wide variety of options available to finance a car. You need not give up on your dream ride or keep putting up with the stress of a public bus. A car loan is a finance option set up to help with the cost of vehicle overtime by making monthly payments. People who can’t afford to pay cash for a ride can now afford cars. This should however be done smartly and wisely to obtain the most benefits. You’re going to be paying off a car loan for years and you definitely don’t want to be cut in the wrong one. Here are some tips that can help you with your car loan application.
Set up a budget
The first step to take while planning to finance a car is to look at how much you can afford to spend. You probably don’t have all the money to purchase the car upfront, but how much can you afford to pay monthly? Most times lenders can offer credit limits to not more than 20% of your income, but it’s important to properly survey this on your own before meeting with the lender.
Making monthly car loan repayments also means that your budget has to be stretched a little. You need to reduce or cut off some of your former monthly spendings to be able to afford your monthly loan repayments. These are the sacrifices you make to own a new car. It is also important to consider the running costs of a car while applying for a loan. Cars need fuel, servicing and proper maintenance to function optimally. This also involves money, so add this to your budget to know exactly how much you can afford.
Keep the loan term short
Your loan term represents the time it’ll take to fully repay the loan. The loan term for a car loan ranges averagely from 3-7 years. Lenders might try to entice you with lower monthly repayments over a longer loan term but watch out for this. A longer loan term means you’ll be paying lower monthly repayments because your loan amount will be divided by the number of months on your term. However, a longer loan term also means you’ll be paying more interests over time. Always try to keep your loan term between 3-4 years if you can afford it. A short loan term also protects you from paying more than the amount a car is worth after a while.
Save up for a deposit
A down payment or initial deposit is a percentage of the total purchase cost of the car. Most lenders usually require you to pay up a deposit before approving your loan. This deposit most times is not more than 10% of the purchase price. However, it is advisable for borrowers to pay up at least 20% as an initial deposit. This keeps your loan term short and protects you from paying far more than the car worth. A huge initial deposit also reduces your monthly loan repayments. You’ll be paying less interests over time. You’re more likely to get approved for a loan while having a huge deposit saved up because this way lenders can trust you more.
Check and review your credit
Your credit history shows your past credit transactions. Lenders use it to gauge your trustworthiness. The credit history reveals your past loan repayments, bill payments and other existing loans. A good credit score increases your chances of getting approved for a loan because it shows that you’re responsible with credits and makes all payments when due. A good credit score is also likely to get you on the same ground with the lender to negotiate better rates. However, a bad credit score shows that you’ve been defaulting with past loan repayments and probably swimming in a lot of existing r=debts. Lenders cant trust such people for obvious reasons and consider them low-risk borrowers. This borrower will be given a very high-interest rate if they get approved at all.
The credit report is not error-proof so it’s important to get a free copy per year from one of the credit bureau and review for errors that can be corrected before submitting to your lender. It is also important to monitor your credit-building progress with the report. One of the ways to build your credit is by getting a secured credit card or credit-builder loan. You can also become an authorized user on someone else’s credit card.
Shop around or consider a car loan broker
Getting a car loan involves a lot of research weighing deals to pick one that’ll work best for you. You need to consider many lenders and get quotes before making your decision. You alos need to research the lender to make they’re legitimate and certified. All these can seem like a lot of work and a way to ease this is by getting a car loan v=broker.
A car loan broker is a finance specialist who has access to a panel of lenders and acts as a middle man between you and the lender. The broker doesn’t borrow you money but just acts as an advocate to make the overall process easier. If you have bad credit or some other difficulties getting a loan, a car loan broker should be a priority to you because they have more information about the market and can connect you to lenders that deal with your type of financial situation. They also offer good negotiating grounds and can help you price the best rates. A car loan broker will prepare your case and present your financial strengths to the lender to increase your chances of getting a loan.
Consider fees and taxes
It’s important to go through quotes from lenders holistically. Don’t look up just the interest rates. Some lenders hide some bizarre fees in between their agreements. Ask for a breakdown of every fee you’re about to pay and question those that seem irrelevant. Another check for early repayment fees or early exit fees before agreeing to a loan. Rember to also include taxes in your budget.
Written by Jacaranda Team