Buying a car is a dream for many. Nowadays, a car not only defines social status but also has become a necessity. While some are able to afford their dream car purchase, many choose to borrow a loan from financial institutions. Such an option helps you own your dream vehicle without putting any strain on your finances.
If you are seeking to borrow a car loan, beware of the following five common mistakes.
1. Borrowing more than you are able to afford
The most important aspect to keep in mind while borrowing an auto loan is your budget. Many tend to make the mistake of borrowing more than they are able to afford. In such cases, you may not be able to pay the Equated Monthly Installments (EMIs) easily. In order to avoid such a situation, chalk out how much down payment you can afford and how much you can pay on a monthly basis.
2. Not checking your credit score
Knowledge is power and hence it is necessary to know your credit score before borrowing a new or a used car loan. Having a higher credit score indicates financial stability. It is a reflection of your ability to repay the loan. Those with a higher credit score may avail of lower interest rates and attractive terms of the deal.
3. Not researching numerous lender options
The rate of interest is the most important aspect of a loan. Numerous lenders offer varied interest rates. Higher the interest rate, greater the amount to be repaid. You may, therefore, conduct thorough research on various banks and Non-Banking Financial Companies (NBFCs) and select the one offering the best rate. While making a choice, take other loan-related aspects into consideration as well. These include loan tenure, car loan eligibility criteria, required documentation, and repayment options, among others.
4. Not reading the fine print
Many individuals make the mistake of signing the loan papers in a jiffy. It is imperative to read all the terms and conditions carefully. Check whether the interest rate on paper is similar to that offered by the lender. Some financial institutions may offer a low interest rate but may offset it with higher charges such as prepayment fees, late payment fees, and foreclosure fees, besides others. Thus, check all the charges and fees levied by the lender before signing on the dotted line.
5. Opting for numerous add-on services
Car dealers offer numerous add-on options such as alloy wheels, sunroof, extended warranty, and display options, besides others. Though you may customize your car based on your likes and preferences, there are some add-ons, which you may not require. These add-on services come at an additional cost and add to the total cost of the car. Adding such expenses to your auto loan only increases the borrowing amount. It is, therefore, important to analyze those add-on services that are absolutely required and politely decline those which you do not need. Making any of the aforementioned mistakes may cost you a great deal of money. So, avoid such mistakes and have a smooth and hassle-free borrowing experience.