Car loans vs. Cash — Which is better?
Car is a depreciating asset, which means it starts losing its value from the moment of purchase. So, why to ever buy a car through car loans? How to finance your car? How to calculate your monthly EMI on car loans? This article will clear all your queries and myths about car loans?
Car loans are secured loans borrowed for purchase intent with your vehicle as the collateral. In case of repayment failure, your vehicle can be seized. The vehicle ensures the security of loan, therefore, interest rates are comparatively lower than other unsecured loans. Also, quick approvals, leniency for cibil score and on spot finance factors serve as merits of car loans.
Eligibility
Most banks fund for showroom price of the car excluding all other costs including warranty, insurance, accessories and registration cost.
- Minimum age — 21 years
- Maximum age — 67 years
- Tenure — 7 to 8 years(max.)
- Interest rate — 8 to 9.25
- Amount — 1 lakh(min.)
- Salary — 10,000/month(min.)
- Employment — 2 to 3 years
Car loan interest
Some banks can offer a minimum interest rate upto 8% but only to a person with outstanding financial credibility. The interest rates on car loans are governed by following key factors:
Cibil score — Good cibil score will not only increase your chances for quick loan approval but can also let you bargain the higher interest rate of your car loan.
Tenure — Tenure refers to your loan or repayment period. Tenure is indirectly proportional to your interest rate. Banks are likely to change the interest rate on loans for shorter tenure and vice versa. Longer repayment period ensures more money for the bank.
Income — Your annual income is considered as a credibility for EMI payments. Lower the income to debt ratio, lower will be the interest rates on your car loan.
Down payment — Down Payment refers to the portion of money, buyer pays from his own pocket without borrowing it from the bank. The more is the amount of down payment, more will be the lender’s confidence in your financial position and repaying capabilities,hence, lower will be the interest rates.
Car loan EMI calculator is a method to calculate current as well as potential EMI’s for your loan which gives you a clear analysis of suitable interest as per your budget/monthly income.
EMI = P. R. (1 + R)^t / ( (1 + R)^t — 1)
where P is principal amount,
R is rate of interest, and
t is the tenure of the car loan.
Car loan vs. Cash payment
Buying a car with cash payment might sound a wiser choice for factors such as outright ownership, no loan hassles, no interest, etc. Why should someone ever finance a car instead of preferring cash payment?
The answer to this problem differs from person to person. For a second, think about a dream car. If your dream car is high-end Mercedes or Audi, why should you ever settle for lower tier cars.
This is exactly what finance lets you achieve. If your monthly income is decent or expected to improve in coming years, you can always purchase your dream car with whatever money you have.
Over the years, if your car requirement changes, you can always sell your present car and use it as a down payment for the next car without using up all your savings or you can get help for paying car repairs with no money.
Universal mistakes committed by even most genius people during car loan financing.
1. Paying way too much money than the actual car price over the years.
2. Not negotiating the interest rates.
3. Not considering the EMI payment calculator prior to buying.
4. Getting a car loan for a longer tenure in the lure of lower interest rates.
5. Not considering your credit score.
6. Unnecessary expenses on unwanted accessories.
7. Not comparing different finance options.
It’s time for final expert advisory!
Always do prior research for all the options available in the market before grabbing one. Negotiate and refinance, if required. Avoid worthless spending in useless accessories for show-off. Always read your loan document thoroughly. Evaluate interest rates, EMIs, extra charges, terms and conditions carefully.
Read more : https://www.behance.net/gallery/100568653/5-ways-to-pay-for-car-repairs
