Get the car of your dreams
This article is about finding the perfect loan for you. This article details what we need to do for looking for special discounts. You will learn how to negotiate final rate of interest rates, and decide whether the loan is right for you to get.
Take care of the interest factor
You will have to consider some factors such as advance EMI’s, deposits, interest factors. If you agree with the financier to pay with low interest and for a long time span, ultimately you are the loser. The total compensation will be excessive.
Avoid getting lured by lowly quoted “flat interest rates”. This explanation is to say that,
the effective interest rate actually turns out to be higher on this method of calculation than the normal methods (Annual reducing balance, Monthly reducing balance etc).
So you end up paying more interest, besides the loan amount in a short period.
Expect to pay higher amounts with a salary hike, promotions etc. Bargain and look for special discounts. You can always negotiate the final rate of interest/EMI that you have to pay. Yes that’s possible. Also look out for some special benefits.
This is to help you make profit by yourself instead of getting flattered by the financiers.
Tenure of pay back
The timing of paying the installment is important as your salary might get credited at a later date than the date at which the payment has to be made. Then you have to provide a cushion by having a reasonable amount of money on your savings account.If higher EMIs payments bother you. Go for a longer tenure loan. Usually car financing is available from 1 to 5 years. However there are some banks which have schemes which offer loans for 7 years. Hunt for them.
Longer tenure of loans is encouraged by a good second hand car market. This is the “Thumb rule”.
Get to know about the agreement
Find out in detail about the loan agreement that you will have to sign, and the stamp charges that you will have to pay. Also try and get hold of a copy of the loan Agreement and read the fine print. Get a clear picture of what a loan agreement is all about.
Have a look at the pre-payment charges
Pre-payment charges that are applicable on payment of loans ahead of schedule. This is useful as one would like to prepay some part of the loan as and when one gets money. This could translate into savings, as outstanding principal amount would stand reduced after such payments. These features help in your decision making during tie-breakers.
Is the loan necessary to get?
Well if you have all the money buy the car from your own funds, you shouldn’t be reading this section.
But if you have idle money lying in your savings account, earning a paltry interest of 4.5%, try reducing your loan amount by that amount. If you cannot pay for the car but still dream of owning one, a loan will certainly help. And if you take it, the downside is that you have to pay your installments till the time the loan is repaid.
This is a great point, as if you have savings you want to make sure you don’t get a big loan.
Deposit schemes to watch out for
Some finance companies reduce the EMI and the interest rate under such type of schemes. Here the financier is effectively borrowing from you the amount equivalent to the deposit and lending the same to you .
The catch is he making money from this process, which he adjusts in the interest rates or EMIs. If he pays 12% interest on the deposit and charges you 17% on the loan, you end up paying 5% interest on your own money. It is better not to go for this scheme, and to use the deposit amount as a down payment and thereby reduce the total loan amount, interest outgo and EMI payments.
This is a great tip in looking for the right interest rate, and these deposit schemes the banks put to fool us!