Things to Know Before Taking a Car Loan

Most people often take a loan to purchase a car as it is not possible for people to have a lot of money saved. Car Loan is the most accessible way to buy a car. Before you take a car loan, you need to understand the different types of loan offered by the banks. Banks offer Car Loan and Hire Purchase. Car Loan is when a bank lends you money and you use it to buy the car. The interest rate is determined by the bank based on the type of car you wish to buy. The loan is unsecured and there is no collateral collected from the borrower. The car will belong to you as soon as you purchase it. You will owe the bank the amount you borrowed and you have to pay interest on the amount borrowed. Hire Purchase, on the other hand, is where the bank will buy a car of your choice and the bank will hold the ownership of the car till you clear the loan with the bank. This provides the banks with better financial security. In Hire Purchase Agreement, the car is leased to you on a monthly basis and the car is not yours till the last payment is made. The bank can repossess the car if you aren’t meeting your loan repayment obligations. You will not be in a position to sell the car before it is fully paid for. You will have to pay a down payment on the new car in the Hire Purchase Agreement. The down payment is usually 10% for new cars and 20% for used cars. Types of Car Loan and Hire Purchase Agreement The following are three types of Car Loans and Hire Purchase Agreement: New Car Loan: This loan is offered when you are buying a new car. This loan is easy to get approval if you have a good credit history. The interest rates offered are competitive. But, before you take a New Car Loan, shop around and choose the one that is affordable. Remember the interest rates vary based on the type of car and the deal the bank has with the manufacturer. Used Car Loan: This loan is offered to those who wish to buy a second-hand car. It may be reconditioned vehicles or used vehicles. The loan is offered based on the condition of the car, its supply and popularity of the model. First Car Loan: This is when you are buying a car for the first time and you don’t wish to purchase a second-hand car, you can take the “My First Car” Loan. This loan is usually offered to those who are just graduating or entering the working world. The loan covers up to 100% of the market price of the car and the eligibility requirements are lower. The car financed will be a practical car and not a fancy one. How can you apply? Car companies and used car dealers usually offer to handle the finance deals. Most people opt for this option as all the paperwork is taken care of and you have to choose the loan tenure and submit the form to your agent along with income proof. The bank will then get back to you with the quotation on the interest rate, repayment schedule and other loan terms. You can also take your own loan, you must note down the car model and call up the bank of your choice and inform about the same. The bank will then inform you the prevailing interest rates based on the information you provide and you can negotiate further. Mention the year of the manufacture of the car as it heavily affects the interest rate. Other important things to remember Following are the additional things that you must be aware of: You have to take an insurance for your car. You have to pay the applicable road tax. Use the Car Loan comparison tools available online to check for the offers presented by various banks. Make your research before you take a Car Loan. Look around for the loan offered by different banks and compare and take a loan that best suits you. Negotiate for the interest rate as much as you can.