Each year, hundreds of thousands of cars change hands, and it is no doubt that a lot of people end up being confused about cars and require clarity regarding the purchase of their first car. One of the most confusing aspect while buying cars, first time or otherwise is its financing. Buying a car is by no means a small decision, and hence it is important to understand all the aspects before going ahead with the decision to buy.
Not everyone is an expert in crunching numbers or financing related issues, and even seasoned buyers can get intimidated by financing and related options. Since most people can’t afford to pay for the entire car in one go; most of the purchases, new or pre-owned require some financing, making it a legitimate issue to worry about for people not acquainted with it!
Experts usually advise prospective car buyers to purchase the vehicle with a simple understanding that the car’s total payoff will happen over the period of 48 months; without stretching your resources too much. A time period more than that might be troublesome in certain cases.
Let’s check out some financing related tips that will help even the most confused buyers understand and take well-informed decisions in buying a car or plan it.
The first thing to check for when thinking about taking financing options is to check your Credit History. Credit History is defined as the record of a borrower’s responsible and timely repayment of debts. However, people’s who haven’t used any means of loan or credits have no established credit history. On the other hand, banks always take into account a person’s credit history before a loan is approved.
The Credit history is also used to determine a lot of factors like time period, EMIs, etc., so it is an important tool in any of your financing. This is why the credit history is an important instrument in managing any financial requirement that requires any loan from the bank. Since the higher the credit score aka credit rating, the easier it is for a person to get a loan. After checking out the credit score, or the lack of it, the next step is improving it. One of the easiest methods to improve credit score/rating is to get a credit card. But keep in mind that only if the payments are made on time that your score will see an improvement, otherwise, it might decline too. Usually, for most people, a credit card marks the start of their credit history.
Expenses and Down Payment
Despite the plans for getting financing for the car, a down payment is a necessity and has to be paid while availing the loan. Keeping in mind the car you plan to buy; you should know that the higher the loan amount, the more the down payment that needs to be paid. It is important to keep an account of all your income and your expenses to understand and plan as to how the payments will be made. The more expensive car will lead to more higher expenditures in the form of higher down payment and EMIs keeping in mind the 48 months time period. This will help in building an effective budget.
Length of the Loan Period
The current market’s average duration for an auto loan is somewhere around five to six years, even though the longer financing time period is also chosen by people. Increasing the time period may seem like a good move, but it also increases the total amount payable to the lending party. It is a reasonable point that the shorter the loan period, the higher the EMI; also it’s the cheapest way to go about apart from making a full payment in one go. Interesting to know about are the specially available zero interest loans, but these loans are available only for a shorter time period.
Verification of the Costs Involved
Verification of all the extra cost involved in the whole process of the buyout is necessary. Since cars are machines that require additional money to use and for upkeep, it is a smart move to check what all additional costs are going to be present. With the car, comes factors like maintenance, insurance, fuel costs, and repair. Making a rough estimate of this amount will help in the division of expenses and advanced planning.
There are some certain pointers one should know about the car’s insurance:
1. Insurance is more expensive for youngsters in most of the cases.
2. The insurance rates for a four door car is lesser than what you pay for a two door car. This follows the notion that with the decrease in the number of doors(standard to sportier), the insurance premium is more as well.
Car insurance is a much needed and critical aspect in a lot of ways and can’t be neglected. It is also illegal to not have insurance. For Dubai cars, RTA has enforced stringent measures to enforce rules regarding it.
Verify Multiple Options for Getting the Best Possible
Since buying a car doesn’t happen every day, it’s important to check for various options when vying purchase a car. The availability of a vast number of banks and registered lending companies has made it easier for people to get loans. You can approach some to get an idea of how much you will end up paying and compare between some to arrive at the best figure. Haggling with the salesman might be a good choice too, or at least ask for the available discounts.
Important Points to Remember about Getting Financing
If there are some issues in getting the loan approved due to credit history, a person can ask someone in the family, usually parents to be a cosigner on loan. This will assist in bypassing credit history issues. Although it also means that the loan is in their name as well, and if there is a default in the payment from the primary signatory, the cosignatory will be held responsible for making payments. Make sure you explain it to the person who is being asked to be the cosignatory.
Always check the signatures before you submit the application and the application. Some car dealers try to change ownership on their own and mislead people into getting the person with a higher credit rating to sign as the primary signatory. This improves the chances of the loan being approved. However, it comes at the cost of your name being removed from loan-related documents.
There is sometimes scope to get the loan financed for the purpose of decreasing loan’s interest rate and to save some money.
We hope that this helped you understand the basic of financing a car for the first time and will help in getting the best deal for self!