The global auto finance industry was worth $244.88 billion in 2021. So it’s safe to say that many people make use of auto financing as a way of getting on the road with a vehicle that suits their needs.
If you’re someone that wants to do the same, then you should familiarize yourself with the processes relating to car finance. Without doing so, you leave yourself vulnerable to industry tricksters who want to make a fast buck out of your naivety.
In this guide, we’ll run you through 4 things you need to know before applying for car finance. By the end of reading this, you should be in a much better position to know how to approach getting a car loan and finding a great deal!
So let’s get started!
1. Your Credit Score Is Crucial
To get the best car financing deals, you need to have an excellent credit score when you apply for a loan. The better your credit score, the more likely you will get a favorable interest rate on your car loan.
Do not let the car loan company check your credit score first. You should check your credit score first and then figure out if you want to make efforts to improve it or not.
Anything above 660 should be good enough for you to just qualify for a car loan. However, if you want to gain more perks and favorability from lenders, you should aim to have a credit score above around 760. With 760 or above, you might be eligible for special financing options where you get a much lower APR on your loan payments.
There are some methods that can help you increase your credit score fast. One of those methods, for example, is to lower your credit utilization rate by getting another credit card or two. Your credit utilization rate is the percentage of credit you use, and so you lower it when you have more credit facilities at your disposal.
2. Spend Time Shopping Around
Too many people get lured in by the first or second car finance option offered to them. But you have to think that paying for a car over a long period is a pretty big life decision that will affect you years down the line.
The best advice is to spend time searching for multiple car loans to see which one can give you the most lucrative interest rate. After all, the auto finance industry is huge and so there should be some healthy competition out there. Plus, if you go away and find better deals that aren’t quite right, you can go back to other loan providers and mention those deals to see if they can give you any leeway on what they are offering.
If you want a solid example of a good car financing company, we recommend you learn more on Automoblog.com.
3. Use an EMI Calculator
Before you commit to anything, make use of an EMI calculator so you can work out exactly what you will have to pay every month in the coming years. You should do this with multiple loans so you can compare the repayments over the long run.
Another thing you should be aware of is the processing fees that a car loan provider adds to your car loan. It’s important to compare these fees from various car loan providers to ensure you are not getting ripped off by anyone.
Plus, ask the car loan provider about how they require you to pay service tax. Some providers will ask for this in a lump sum, while others will ask for your service tax as an annual payment.
Overall, make sure you know about all the costs and fees associated with your loan and when you need to pay them. The last thing you want is a balloon payment springing out of nowhere that you have to pay.
4. Best Application Practices
While it may be tempting to pay less every month over a longer loan tenure, in the end, you will end up paying a lot more than you could have done in a shorter period. As a rule of thumb, you should look at choosing the shortest repayment period possible to minimize your overall repayment amount.
Also, the more down payment you can offer, the better loan terms you can expect to get. There may be options out there where lenders allow you to finance 100% of the car, but you should be careful to check and compare their terms with other lenders to see how much extra you will need to pay!
You should also hunt around to see what your loan eligibility is like with different providers. You might be surprised to realize you can get a much larger loan and a better car than you thought possible. That said, ensure you can make the repayments every month without them putting strain on your finances.
A simple rule you can choose to follow is to not get a car loan that takes more than 15% of your monthly income for loan repayments. If you are getting a used car, you might want to drop that percentage to 10%.
And one last consideration is that you should consider car options that don’t depreciate in value so much. This way, you can get good use out of the vehicle for however many years and have a chance to sell it off for a decent price. In rare circumstances, you may only lose a small amount of money from the resale because the car you chose has an excellent reputation and is in high demand.
Car Finance Tips Explained
The car finance industry is huge, so there are no excuses for you to not go out and hunt down some great deals for yourself! Take your time searching, make sure your credit score is in order, and try not to commit to repayments that are more than 15% if your monthly income.
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