One of the major benefits of car loans is that they have improved the affordability of owning a car. All that’s required of you is to pay a fraction of the car’s total cost as the down payment. The rest of the amount will be paid in the form of affordable rates of interest, which can be paid as time passes in the form of the car loan EMI. But before signing up for these loans, you need to do so after considering some points. Here are some of the factors you need to consider before signing up for a car loan so that you land yourself a good deal:
Your credit score
When you apply for car loan, the loan lending party first makes sure to assess your creditworthiness. If you happen to have a credit score of 700-750 and above, you have greater chances of getting your loan approved. There are also some lenders who are known for charging lower interest rates in case you have a higher credit score. It is also possible for you to access your credit score online. This will provide a clear idea of your creditworthiness and provide you adequate time for taking measures for improving your credit score.
The interest rate offered on the car loan
Interest rates on car loans are known for being dependent on factors such as car model, repayment capacity, employer, the lender, credit score, and many more. There are some lending parties that are known for offering the best car loan interest rate to their existing customers based on their credit scores. So, make sure to check the interest rate offered by the lender while applying for a car loan to understand whether the loan is affordable.
The Loan to Value (LTV) ratio
The LTV ratio can be defined as the percentage of a car’s price that will be financed by the bank. The rest, which is also referred to as a down payment, is to be paid by you. It is better for you to try to make a higher down payment. Putting down a higher down payment lowers the lender’s risk, which can result you getting offered favourable loan terms.
Your EMI affordability
The EMI or equated monthly instalment can be defined as the equally divided monthly deductions for clearing off an outstanding loan amount within a particular time frame. You can check your EMI affordability by subtracting your mandatory monthly expenses from your monthly income. EMIs are also known for having an impact on car loan interest rates. While it is true that a higher EMI will certainly result in a lower interest rate, please don’t do it if it is costing you your investments or your emergency fund.
Other than the four above, another factor that you need to consider while applying for your car loan is the repayment tenure. While a short repayment tenure can result in higher EMIs, it can be effective for cutting down on the total interest payment. However, it is advisable to opt for a repayment tenure that suit your budget. For instance, IDFC FIRST Bank’s car loans are known for coming with a tenure of up to 10 years.