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Taking a car loan can lead to loss if you make these 5 mistakes in a hurry

You can avoid them by knowing in advance about the 5 big mistakes that can be made while taking an auto loan.
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An auto loan is the easiest way to raise funds to buy a car, bike or scooter. But while buying a car through auto loan, one should not act in haste.

A hasty decision sometimes becomes a cause of loss. Auto loan borrowers often make 5 such big mistakes, which they may have to bear the brunt of for a long time.

If you know about these mistakes in advance, then you can avoid repeating them.

Loan Out of Budget

There are many times the temptation to spend more than your budget, but it is important to avoid it. Before taking any decision regarding auto loan, it is necessary to assess your repayment capacity i.e. ability to repay the loan.

If the loan amount is high, then its installments (EMI) will also be higher. If you choose to repay the same loan over a longer period of time, the EMI payable every month will reduce but the tenure of the loan will increase, which is not good for your financial health.

It would be better if you take as much loan as can easily come in your budget.

Not Checking Credit Score

Credit score helps a lot in getting loan at cheap interest rate. If you know your credit score in advance, you will be able to deal with loans with low rates or attractive offers.

Therefore, before applying for the loan, you should know about your credit score. For this, you search by writing a free credit report on Google, then within a few minutes you will get the links telling the credit score.

Extend the Term of the Loan

The longer the loan tenure, the lower the EMI that goes every month. For this reason, many times loan borrowers think that it is better to take a loan for the maximum tenure.

But here it is important to understand that the longer the tenure of the loan, the more interest has to be paid.

Therefore, the tenure of the loan should not be kept long. For example, if you took a car loan of Rs 5 lakh at 10% interest rate and the tenure to repay it is 7 years, then you will have to pay Rs 8,300 as EMI every month.

Accordingly, in 7 years, you will pay Rs 6,97,200 instead of Rs 5 lakh, i.e. Rs 1,97,200 more than the loan amount. But if you take the same loan for 3 years at the same interest rate, then you will have to pay an EMI of Rs 16,133 every month.

In this way, against a loan of Rs 5 lakh, you will repay Rs 5,80,788 in 3 years, which will be only Rs 80,788 more than the loan amount. Obviously, the longer the loan tenure you keep,

Not Comparing Interest Rates

It is a big mistake not to compare the auto loans offered by different banks or financial institutions before taking a car loan.

Before applying for a loan, one should always compare all the available options and deal with the loan with the lowest interest rate and best features.

Even if there is a reduction of 10 to 20 basis points in the interest rate, there is a huge difference in the interest burden on you.

Take Auto Loan Without Down Payment

It sounds great to hear about buying a new car without making a down payment, but doing so is against financial prudence.

Taking a car from the showroom without any down payment means more loan and higher EMI. Apart from this, many times the interest has to be paid more if the loan amount is more.

Sometimes hidden charges are also attached to such offers, which are not fully known to the applicants applying for the loan. It is better that while taking an auto loan for a new vehicle, you must pay at least 15-20% of its total cost as a down payment.

If you meet the remaining 80 to 85 percent of the cost through a loan, then the burden of interest and EMI will be reduced on you.

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