Seeking a loan can be a tedious process, especially when it is your first time. There are many verticals that you must be aware of before applying for a used car and vehicle loan. The idea here is to be able to make an informed decision that has no negative impact on the future financial health. Here are 5 questions that you can ask –
1. What Is the Interest Rate and What Is the Total Amount Being Financed?
You must know the interest rate of the used car and vehicle loan. This interest rate will reflect on the monthly EMI that you will pay out eventually. It is recommended to be aware of the standard industry rates that is charged for a vehicle loan. The interest rate for vehicle loans can be anywhere between 9.5% and 11%. You can get a relatively lower interest rate if you have an existing relationship with the financial entity.
The next important thing that you must take note of is the amount of the vehicle being financed under the vehicle loan. Ideally, 20% of the vehicle price must be self-funded and the remaining 80% can be financed by the financial entity.
2. What Is the Final Price?
Most people don’t look at the final figures or the total amount they would be paying. There are many other charges such as the loan processing amount, documentation costs, foreclosure cost and the penalty charges, which need to be taken into consideration for arriving at the final amount. If you consider these, the final amount will definitely go high. Hence, you must be able to assess these costs and calculate your ability to repay before seeking the final loan.
3. What All Does the Car Loan Fee Include?
There are many charges that are applicable at the time of sanctioning the final loan amount. These miscellaneous charges include stamp duty, credit report charges, service charge, loan processing charge, prepayment fee, registration fee, taxes, bounce charges etc. You need to ask your lender whether this will be subsumed under the loan amount or it has to be paid separately.
4. Will I Be Able to Make Payments Early?
Many borrowers overlook this part. Most of the banks have a penalty for prepayment and foreclosures. You need to make sure the charges for the same are minimal. There are many entities that don’t charge any fee at all. You can save a lot by giving preference to such financial entities.
5. What Documents Will I Need?
Every financial institution will have a different set of requirements. As a borrower, you will be required to produce documents that support your ability to repay the loan. Often, these documents are proof of the legitimacy of the borrower. In a majority of the cases, you will need to procure the following documents:
• KYC documents supporting age, identity, and address proof.
• Employment proof
• Bank statements
• Income proof
• Business ownership and stability proof
You must choose your lender wisely and check your credit score to gauge your financial stability. You may proceed with the loan only when you tick all the boxes on the checklist.