How to Find the Best Auto Loan?
Much effort goes behind selecting and buying the perfect car. From pricing to comfort to budget, we often have many parameters to decide what car suits us best. Another important factor to consider is the auto loan. A car loan helps you purchase the car without having to make the entire payment in one go. The monthly installments help you clear off your dues smoothly, without having to worry too much. However, there are some specific points you need to keep in mind before opting for a car loan.
Fix a Budget
Salespersons often give you an option for long term loans to make any car seem affordable even when it is not in your budget. Here is a basic understanding of the terms for loans.
- Down Payment: This is an amount you need to pay upfront while making a purchase. The higher the down payment, the lesser your loan would be. Often, it is suggested to make at least 20% of the payment upfront. It may sound like a lot to pay, at first, but it helps to secure loan payments later.
- Monthly Payment: For a fixed number of months, your loan process will allow you to make regular payments. These are also known as Equated Monthly Installment (EMI).
- Loan Term: It is the set period in which you will repay the loan amount. Longer loan terms have a higher interest rate, which makes it more expensive. Hence, it is beneficial to opt for a shorter loan period, preferably 36 to 48 months.
- APR: The Annual Percentage Rate (APR) is the annualized interest rate that
you need to pay on the amount you have borrowed.
Your credit score keeps a track of the purchases you’ve made in the past using a loan. It evaluates whether you were able to pay back these loan amounts on time or not. It is essential to check your credit score before opting for an auto loan. It would indicate whether you are eligible for the loan or not. With a good credit score, you may end up paying less interest on your purchase.
Avoid Prepayment Penalties
Some lenders force a prepayment penalty if you clear off a loan before the completion of the loan term.