How To Make Better Financial Decisions When Buying A Car?
While securing a Car Loan is relatively easy, repaying it can sometimes become challenging if you’re not well-informed. Taking a loan is a significant financial commitment that requires careful consideration; otherwise, you could be in debt. It’s important to understand that the loan amount, tenure, and interest rate all influence the size of your monthly instalments. Therefore, it’s crucial to understand how the entire process works before you make any decisions.
Tips to Make Better Financial Decisions While Buying a Car
One must always follow certain tips to make better financial decisions while buying a car. These tips will help you make the right decision and benefit you in the long run. Some of the most helpful tips have been discussed below:
- Use Pre-approved Offer: Prequalification for a bank loan is recommended before searching for a Car Loan. Pre-approved offers have several advantages. First, the process of getting a car home will become faster. Second, you will be able to avoid overspending on things you can prepare on your own and save that money for something else. Reputable banks like ICICI Bank offer Car Loans to existing customers with less paperwork and extra privileges.
- Offer Large Down Payment: Although you can borrow up to the actual amount of the car, putting a down payment helps lower the loan amount you are to repay. A large initial deposit means the lender reduces the money they lend you. This further increases the chances of getting a loan and decreases the total interest paid on the loans.
- Right Loan Duration: Car Loans are specified for a 7-year tenure. In this case, choosing the right tenure is crucial to effect proper management. The interest rates applicable to the Car Loan might shift based on your chosen tenure. Ensure the tenure you select is suitable for your cash position.
- Use EMI Calculator: To finance a car means paying a certain amount with interest in equal and regular instalments. Before agreeing to the mortgage, one has to approximate the monthly payable instalments. So, when you plan to take out a Car Loan, you can compute the probable repayments using a car EMI calculator. Ensure the EMI is something which you can comfortably afford.
- Select Your EMI Date Preferably: When the bank sanctions a Car Loan, you are offered the privilege of selecting an EMI date. This is when the bank will take the specified amount from the consumer’s account. Select a date convenient for the payment to be made that month. It should preferably be a few days after the expected salary date.
How to Choose the Right Tenure for a Car Loan?
A Car Loan tenure is the period within which the borrower agrees to pay back the entire loan amount and the interest thereon. It usually ranges between 1 and 8 years.
Most people are always in a hurry to sign in for a particular tenure without fully understanding the various things that would compel them to go for a particular tenure. Consider the following factors before choosing the right tenure for a Car Loan:
- Your monthly budget: The most important prerequisite to consider when selecting the repayment tenure of the Car Loan is the budget one can spare every month. If you choose a shorter term, your monthly EMI or Equated Monthly Instalment will be higher, and if it takes a longer term, then your EMI will be comparatively low. One should choose the tenure they can comfortably afford regarding monetary capability.
- Interest rate: The Car Loan interest rate tenure may also differ from one provider to another and from the term you select for the Car Loan. Usually, short-term funds have lower interest rates and are affordable to service in the long run. Moreover, interest rates may be slightly higher if you go in for a longer term.
- Total interest payment: Total interest, which will have to be repaid over the tenure of the loan, should also be considered. While longer tenures could entail low monthly EMIs, you must pay a higher interest rate. On the other hand, loans with fewer years mean the EMI could be relatively high, but the total amount of interest that has to be paid is less.
- Loan amount: The amount of loan needed also greatly influences the determination of the best tenure. While lending smaller amounts is easy and can be repaid within a short time, say 90 days, lending for larger amounts will call for a longer repayment period, say 12 months.
Conclusion
Choosing the right Car Loan tenure is one of the most important decisions you can make while borrowing. Reputable banks like ICICI Bank offer several durations to successfully meet their consumers’ monetary requirements, whether short-term or long-term. To make a rational decision, evaluate your monthly income, the amount you need to save in the future, and the total interest charged for the tenure.
Remember, when lengthening the tenure, EMIs decrease, but, in total, the interest to be paid increases. On the other hand, a shorter period allows you to be free from debt relatively faster, but at the same time, the monthly instalments are relatively high. Meticulous balancing makes obtaining a rich Car Loan deal that will favour your financial status easier.
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