An auto loan can be the first significant loan many people take from the formal banking system. While it is a wonderful feeling to own your own vehicle, the cost of purchasing the vehicle should not leave you unhappy! Here are some tips on what you can do to get a good deal on your auto loan.
Remain updated on your credit score: When you are planning to buy a vehicle – whether two wheeler or car – the first and best thing you can do is to find out your credit score before you apply for a loan. If your credit score is high, you stand a good chance of being approved for the loan and you can avail of favourable terms and conditions. If you are aware that you have a low score, then wait to improve it before applying for the loan. Many people are simply unaware of their credit score and so are unable to use it as a negotiating tool. If you have a good score, then the lender might agree to a lower interest rate. Even a half or one percent reduction in the interest rate on your auto loan can save you thousands of rupees in repayments over the entire loan period.
Focus on the total cost of the loan, not the monthly payment: When weighing the various loan offers, a low monthly EMI might seem like the best choice. This is not so. You might be paying a higher interest rate over a longer period which makes the monthly payment lower but means you pay out more in interest payments over the long run. When you are deciding on an auto loan (or any loan for that matter) check what the total cost of the loan will be – i.e. principal plus total interest over the tenure. Choose the loan that has the lowest total price.
Make a higher down payment: If you have a high initial down payment, your repayment burden will be lower and you will end up saving a significant amount in interest payments over the years. If possible, save systematically to put aside money for the down payment.
Pay for add-ons and accessories from your pocket: Buying accessories only increases the price of your vehicle and drives up dealer margins – it will not help you save any money! If you plan to buy any accessories, do so separately from your pocket rather than adding it to the price of the car. If it is part of the car price, you will be paying interest on your purchases for years to come.
Do the research: And finally, shop around for the best rates before you buy a car and apply for a loan. Be prepared with up to date information on your credit score and market interest rates. This will enable you to negotiate better loan terms with your lender and save money.