Are you planning to drive in a swanky car? But, you do not have sufficient funds to finance your car. Then, you can always opt for an auto loan from a bank or an online lender. However, you need to take care of a couple of things when applying to finance your car. Taking car loans is common among the millennial generation. Studies show that most people working opt for an auto loan due to lack of liquid funding. Today, getting a vehicle loan is easy because there are multiple lenders out there to come to your assistance. There is no doubt about the same.
The competition among financiers is growing intense and therefore, they are offering auto loans at competitive interest rates and terms and conditions.
According to an article published on https://www.huffpost.com, auto loans and cars have some things common. Most people associate the car with their lifestyle and consider it indispensable. Based on the findings of the Consumer Finance Protection Bureau, almost 90 percent of US citizens travel in their personal vehicles to commute to the office. The trend is also growing in the developing nations as well, especially for the millennial generation who take out a loan to buy a car. That is because they do not have adequate funds to buy a vehicle of their own. Another data of Federal Reserve indicates that the total amount related to car loan debt in America is more than $1 trillion in 2015.
Read on to learn more about the four essential things to keep in mind when applying for an auto loan.
- Keep all your documents ready
If you are looking for a car loan, you need to have all the papers in place. Without the right documents, your loan application will face rejection eventually. There is no doubt about the same. Most of the banks and online lenders will ask for your income proof, KYC details, and things like that. If you are not able to furnish these documents, then the application will not sail smooth. The lenders will verify all your documents for their validity, especially your bank statements, pay stubs, ID proof, photo ID, income tax statement, address proof, and credit report.
Again, if you have taken a loan recently, the bank or lender will ask you to provide NOC provided you have repaid the loan recently. The lenders will also ask your credit card statement to understand if you have any outstanding payments to clear. If you have any existing debt unpaid, your car loan application would be rejected right away.
Therefore, keep all such documents in place and make sure they are valid to ensure easy auto loan processing and its approval. Else, you will face difficulties in getting the loan approved, leading to further delays.
- Decide how much you can afford to pay as a down payment
Zero down payment option is not your best bet. Do you know why? That is because even if you do not pay anything initially when applying for a loan, the total cost of your auto loan remains the same. Therefore, you cannot save when applying for the loan. There is no doubt about the same. Therefore, you should always agree to pay something as down payment as that will make you shell out interest on a small loan amount.
Besides, if you do not make any down payment, there is another problem. When you drive away with the new car from the lot, the vehicles start depreciating. So if you do not make an initial payment, you will owe more money than your car’s value. Now, what does that mean? If your car is stolen or totaled in a road crash, the payment you get from the insurance agency will not be sufficient to repay the entire loan. There is no doubt about the same.
However, you need to consider how much you can afford as a down payment. Pay as much as you can afford to reduce the loan cost. Then, if you do not have the funds, avoid borrowing to pay the down payment amount. Besides, if you want to learn more about auto loans and interest, look up websites like NationaldebtRelief.com.
- Loan tenure and rate of interest
Many people choose car loan tenure longer thinking that they are paying less. It is nothing but a fallacy. You may pay a low monthly amount but end up paying more in interest. It means that you shell out more than the price of the car in the days to come. Then, if you are looking for used vehicles, avoid taking long tenure loans. That is because a secondhand vehicle will have a less useful life compared to a brand new car. There is no doubt about the same. In any case, you would not like to have the loan outlive the vehicle.
When it comes to auto loan interest, it varies from one lender to the other. Therefore, research lenders and compare the loan rates and interests. It is in your best interest. The interest is typically more for long tenure loans. Therefore, you should always choose a short tenure auto loan to save money. These little things matter when applying for an auto loan.
- Direct and indirect lending options
You can apply for a loan directly from a bank or lending agency or a car dealership. Yes, there are two ways. It may seem convenient to apply for an auto loan from the dealership but a dealer may mark-up the rate of interest or try to squeeze you for additional income or incentive. Avoid falling into such traps. Else, the cost of a loan will increase and you would have a tough time making the monthly payments on time. Avoid settling for the dealers’ terms and conditions unless you have a couple of loan offer to compare with that of the dealer.
Now that you have these details in front of you, avoid making mistakes when applying for a car loan. It will benefit you in the long-term.