7 Things to Consider Before Taking Out a Car Loan
Just borrow the money, put down a deposit on the car and then make repayments every month until you have repaid the outstanding balance.
But before you take out a car loan, there are a couple of things you need to consider.
How’s your credit score?
Your credit score can dictate the interest rate you’ll be charged on a loan and whether you’ll get a loan at all. Which is why you should make your credit score look as good as you can be before you to take out a car loan. Paying your bills on time, limiting credit enquiries, and keeping your credit card balances low are just some of the ways that you can improve your credit score.
Do you know the upfront costs?
The down payment on the car is the largest amount you will need to pay upfront. If you have managed to save up a significant deposit, you will be able to reduce the size of your monthly car loan repayments. Another upfront cost of buying a car is the stamp duty, although some dealers may add the stamp duty to the vehicle the price.
Can you afford the car loan repayments?
A shiny brand-new car sounds like a great idea but a car loan is a huge financial responsibility on your plate. Can you afford to make the repayments while being able to live the lifestyle you want?
Put the car loan repayments into your monthly household budget and see if you can accommodate them. A car loan calculator will be able to give you a rough estimate of your repayments. Just indicate your loan amount, interest rate, initial deposit, balloon payment and loan term.
Should you include a balloon payment?
If you can’t afford large monthly repayments, including a balloon payment in your loan can help reduce their size. A balloon payment lets you repay a large chunk of your loan at the end of the term when you may receive a lump sum for trading in or selling the vehicle.
What is the interest rate?
The interest rate will affect the amount of your monthly car repayment and the overall cost of owning the vehicle. Lenders offer different rates, so it pays to compare various financial institutions to get the lowest possible interest rate on your car loan.
How long is the loan term?
The length of your term will vary from lender to lender. A longer loan can mean a lower repayment but this will entail more repayments overall and a higher total price. Also, be wary of very long loans. You don’t want the loan to outlive your vehicle.
Do you have all the documents?
Different lenders will require a different range of documents. Mostly they will require identification documents, proof of income, savings, and proof of residence. Check first with your lender about the documents so you can better prepare.