Having a dream of buying a car but didn’t know anything about finance?
Don’t worry then, all your doubts will vanish after reading this blog whether buying a brand new or a used car.
What is CAR FINANCE?
Car finance refers to the various financial products which allow someone to acquire a car, including car loans and leases.
Here is a short story of Abhishek which you can relate with easily.
Abhishek wants to buy a car and confused about which car to buy new or old.
He didn’t know about the used car finance. He started searching about that but didn’t get the desired result.
Now Abhishek either gets a good option or ends up losing so many things.
There are many people like Abhishek who wanted to buy a car but failed to make good decisions because of a lack of knowledge of finance.
Here, in this blog, you will find out all the things to be kept in mind before going for a car loan.
What you in this blog
- Extreme points to remember
- Loan amount
- Interest rates
- Basic terms and conditions to know
First of all, we need to understand that car is not a necessity it’s a luxury. So, you won’t get any kind of subsidy or relief in interest rates from the government.
Generally, interest rates start from 8.25% in most of the banks. But some banks do offer lower interest rates which start from 5.50%. Every bank loan comes with different terms and conditions.
How much loan you can get is completely depend on your CIBIL.
Before proceeding for a loan, you must know what kind of loan you need for a new car or old car because only a few companies provide loans for old cars.
Old car loan requires more verification and also more time.
Also read: How to buy the best car in your budget?
It doesn’t matter which car you are buying but for every car you need to pay an upfront amount which is necessary to decide the loan amount and the EMI’s you have to pay.
More upfront means less amount of EMI. Less EMI’s means less burden.
“If you buy things you do not need, soon you will have to sell things you need.”― Warren Buffett
Well said by warren buffet and suits in this situation.
I am trying to say with this quote is don’t push your limits to show off with a luxury car because it can harm your savings, gives you financial pressure.
Analyze your salary, make some basic calculations on your own. How much you can spend on EMI’s.
Always remember that car is a luxury not a necessity, don’t make such a decision which affects your necessity.
If you run a business, then there is a huge possibility that you have liquidity which didn’t mean you are free to spend on anything you want, it can affect your transactions and indirectly your business is affected too.
Extreme points to remember about car finance
Different companies have different interest rates but most companies (which are top in the list) have a slighter difference in their interest rates like 0.25% or 0.50%.
Most loan companies don’t even have a difference of total 1% as it can distract their customers from the top of their rivals.
Upfront amount or down payment:
As I discussed earlier, this is the most important thing which should be decided because the whole loan amount is based on this thing.
Zero down payment:
In order to attract new customers, this facility is mostly provided at times when particular company sales were going down and
This is basically to attract customers as not paying anything and getting a car at first.
Zero interest offers:
These offers are maybe genuine or fraud.
Basically, what happens is dealers used this trick to let the customer walk in their showroom.
But the real catch is they have a processing fee which is lesser than the interest.
But it covers around 60-70% of interest whereas some are genuine also where you only need to pay a few processing fees which are nothing in front of interest.
For e.g. – SKODA offers this scheme a few years ago which increases the sale units of SKODA in that particular year.
NOTE: this is not sponsored by SKODA or any other company.
Mostly car loans in India range from 36 months to 60 months i.e. 3 years to5 years. This thing is depending on the buyer and his financial situation which allows him to pay large EMI ‘s or not.
Big EMI means earlier the loan is getting repaid and also saves you a lot of interest.
Decide a loan amount after confirming the upfront amount you are paying for the car. For e.g. – your car costs you about 10 lakhs INR, out of which you have 2 lakhs only. Now you need a loan of 8lakhs INR.
Always take a loan if necessary because one single not paid EMI can affect your credit score and get it down by a maximum of 50 points.
Keep some funding as a backup.
For e.g. – if your EMI is 30000/month and by any chance, you couldn’t arrange the money, you can use that funding for repaying the loans.
Never rely on one source before taking a car loan. Do your thorough homework and research properly about the interest rates.
Loan company executives are available in the showroom. Try bargaining there, although they are not allowed to give such discounts, sometimes they are.
Interest rates in car finance
Many interest rates are there in the market of different companies. And also, there is a very slighter difference in interest rates.
No bank or any other financial lender is bad, it’s all about their customer satisfaction.
This is also true that interest rates can be changed for the customers.
There are some factors that judge the interest rates like your credit score, your job profile, your salary, etc.
Healthier the credit score allows you more
USED Car loan
A used car loan is a loan which is given on used and old car.
This type of loan is not provided by all banks and lenders.
It takes a little bit of more time to disburse the loan because it demands to smore verification than a new car loan.
When you are buying a new car, the car you get is brand new but on the other hand the car you buy from some third party which is used demands to past few tests before finalizing the loan.
Basic terms and conditions to know of car finance
Every bank has some basic Terms & Conditions but somethings are different.
Every loan irrespective of its kind have basic terms and conditions:
Grace period is the period of days that are given by the bank as a deadline extender.
Lenders help you by providing you a loan but if you fail to repay the loan it does not affect only your credit score but also charges you a penalty.
Your car is the mortgage to the loan company until you get your no dues certificate.
Which means loan company can forfeit your car if two or more EMI’s (depends on terms and conditions of the banks).
If you buy a vehicle at festival times, always ask for more discounts as the company won’t tell you all the offers because the offer, they provide is a dealer’s loss.
Keeping an eye on your car finance is as mandatory as taking a loan.
Taking a loan is not bad thing but monitoring your loan is also necessary to stay tension free.
Monitoring a loan means checking the EMI is cleared or not, keep your bank account funded every time.
So that if you forget to deposit the amount or salary didn’t get credited. You are out of the situation.
When going for a loan ask for discounts, surely you get something as they also didn’t want to lose their valuable customer.
No, this blog is to aware of the loan honey trap.
If you find out on google you will see many cases in which people buy a car on loan and fails to pay the EMI’s which later resulted in the forfeit of car and losing maximum from the CIBIL score.
Many can see such cases in their surrounding where people took a loan and it’s hard for them to pay the EMI’s.
All I wanted to say through this blog is taking a loan is not a bad thing but not handling the loan is.
Yes, it is possible that you would not get a loan on your name because of the following circumstances like you don’t have any credit score because of not taking any loan or credit cards.
Your income tax returns are also the reason.
If your annual package or turnover didn’t meet the loan requirements of your desired car.
In that case, you can apply for a loan in your family member’s name who has a credit score.
3. Can I buy a car in full cash?
Yes, you can, but in order to pay the full amount in cash you need to show the income details that from where you get the money.
It is mandatory for a company to send the records to the Income Tax Department and if they find anything wrong you may face trouble