6 Car Loan Tips: How Much Car Loan Can I Afford?
Buying a car is one of the most significant purchases in life. However, it could turn out to be a grave financial mistake if not executed carefully. Although the buyer might not realize it, this decision is most likely clouded by emotions – especially for first-time car owners. This could lead to the owner ending up with a complicated piece of equipment that is more of a liability.
Before moving forward, you need to figure out exactly why you would like to purchase a car. Undoubtedly, a car is a convenient means of transport for getting around, and most people use them to go to work or maintain a specific social class. However, these are not the only reasons; people also purchase commercial vehicles for their businesses.
Taking a car loan is a good option if you don’t have the full amount and here are some useful tips for getting one that is affordable.
It is All About the Math: Auto Loan Calculator
If you want peace of mind, know how much you can afford to spend on the purchase. Based on this information, you could decide on a cheap, median-priced, or luxury car. Cheap cars are a hit or miss kind of thing, but you can find a nice car with minimal issues. The auto loan calculator helps you determine your eligibility for a specific car loan.
A loan will help make your purchase more affordable by splitting it into manageable installments. But there’s a catch – you need to make the initial commitment fee. The amount required here depends on the age, type, and model of the vehicle. In fact, most car sellers offer a car loan calculator on their site to help you make that important financial decision.
What is it Going to Be? A Brand New Car or a Second-Hand Car?
Although new cars are cheaper to maintain, they come with a higher price tag. On the other hand, second-hand purchases might cost a fraction of the initial cost but might have a slightly higher maintenance cost. However, their lower prices make it possible to buy the luxury car that you always wanted without having to pay the full amount.
Again, the brand you choose matters. Some cars are notorious for issues with the gearbox, suspension, ignition and more. But the problems tend to appear after the 50,000 km mileage mark. Therefore, doing your homework on car brands could save you a significant amount of cash in the long run.
What to Do After You Find Your Dream Car
Most probably, this is where the emotions kick in. There’s a social class to maintain while considering the use and cost of the car. Also, there are so many choices out there that seem better than your initial choice but don’t let them get in your way. Now, the only thing between you and the car is the price.
Luckily, there are many car loans to help you but is the repayment term favorable to you? What about the interest rates? At this point, you need to revisit the car finance calculator and determine if you can afford the purchase. Try to avoid loans with high-interest rates or better still, negotiate the terms with your lender. That can only apply if you have an excellent relationship with them.
Does the Loan Come With a Grace Period?
If you think this is a good thing, please consider this. The interest rate does not recognize the grace period, it’s a trick that lenders use to increase their profits. They use it as a sales pitch and promise you six months deferred payment with no penalties. Don’t be tricked into going through with this deal, start your payments as early as the first month.
Are you Dealing Directly With the Lender?
Sometimes, lenders strike deals with car dealers. They take a cut, so if you choose a loan from them, you have to pay more compared to going directly to the bank. It is unfair to the buyer because you might end up buying a second-hand car at the price of a new one. As a safety measure, visit the lenders directly and compare their rates to those you receive from the dealer. However, some of those dealers have their own lending companies (captive lenders), so proceed with caution.
What About Pre-closure Penalties?
For sure, completing a car loan before the designated term calls for a celebration. You now own the car and save money in the process. But some lenders are not happy with your achievements. They may have a policy of slapping additional fees for people who don’t follow their rules. If you are thinking of using this route, it’s important to ask the lender’s procedures beforehand.
Now that you have the six tips for choosing the best car loan, you can finally make that purchase. Remember that, the decision you’re making now is a long-term commitment. Therefore, make sure the car is worth it, and the loan is affordable, and you are good to go. Happy driving!