Getting your hands on your first car today is quite easy, thanks to the different auto loan schemes offered by banks and other financial establishments. But with the various types of auto loans to choose from, finding the right one that will allow you to own your dream car without any inconvenience and stress can be difficult.
Preparing yourself for all the hard work that comes with choosing the best car loan will help you navigate the selection process better. A key part of this is knowing the crucial elements that separate the ideal products from the lackluster ones.
If you are shopping around for the top auto loans, you can narrow down your list by looking for those products which have these key elements:
Reasonable interest rate
There are two main types of interest rates applied to car loans: fixed or flat and reducing or diminishing balance interest rates.
Fixed interest rates are computed each month based on the total amount the customer has borrowed. Reducing balance interest rates, on the other hand, are calculated monthly based on the amount the customer currently owes the bank.
Based on the above, the reducing balance interest rate is better than the flat one since you can save more money in the first method. As such, make sure you look for car loans that come with this kind of annual percentage computation.
However, it can still be tricky to calculate the total interest you will pay beforehand. If you want to find out the actual cost of your loan and be sure it won’t leave you broke, convert everything into the effective interest rate equivalent first. You can use an online calculator or ask a bank staff or loan agent to help you compute this.
Convenient payment plan
As a borrower, it is crucial that you carefully evaluate this factor before applying for any product. By doing so, you will be in a better position to create a good financial plan which you have to follow as you repay the loan.
When taking out a car loan, you will have to choose between short and long-term payment.
If you choose a longer repayment period, which is usually six years or more, your monthly fees will be lower. However, you will end up paying a higher interest rate.
Conversely, with a short-term payment period, your monthly fees will be higher. The upside is you will pay less in overall interest charges. Additionally, you will pay off the full loan in a shorter amount of time and, thus, be free of this responsibility faster.
It is best to talk with a bank representative or lending agent to get details about their payment plans so that you can make a more informed decision.
Affordable down payment
The amount of initial investment you will put down for your car is also crucial. After all, when you make a large down payment or something higher than the minimum amount, your chances of getting a lower interest rate will be better.
Typically, the down payment is determined based on your credit history and credit score. You have the option of paying only this amount if your budget won’t allow you to go higher. But if you can pay a higher down payment, do so since you will save more money in the long run.
Reasonable additional fees
If you are applying for a car loan, you have to know that aside from the interest rate, there are other fees involved with this financing option. Often, these extra charges are hidden.
Examples of these additional charges are:
- Processing fee
- GAP insurance
- Sales tax
- Registration fee
- Prepayment penalty
Make sure you inquire about these additional fees so that you will know all of the costs involved in the car loan and be prepared to pay for them.
Many banks and lending companies offer additional benefits that include credit and debit cards, free registration, and extended warranties to attract customers.
Although these bundled offers may seem appealing, find out if they are free. Some companies may provide these with their loan products; however, they may come at additional costs that you will have to pay for.
Finally, to be approved for a car loan, you have to submit various requirements. These usually include an employment or salary certificate, pay slips, bank statements, and utility bills as proof of address.
In case you are an immigrant or foreign worker, you will have to submit other requirements as well, such as a copy of your passport and residency permit.
Make sure the loan provider requires documents that you have or can quickly obtain. If not, you will have to look for another bank or company.
Using a bank loan comparison website to compare the different auto loan products will help you streamline the whole process. With these platforms available, you will also have a higher chance of getting an excellent deal for your dream car.
About the Author:
Deepak Kumar is a Co-Founder of SoulWallet, a neutral comparison portal for consumer financial services. With a team of “out of the box” thinkers and a deep understanding of the UAE consumer banking industry, the company helps customers make the best choices when shopping for financial products such as credit cards and loans.