Auto Financing – Quick 5 Mistakes Ruining Your Chances

Introduction

Auto financing is a decision involving huge capital. The size of the car doesn’t matter when you are still dealing with lakhs of rupees, to begin with. And to make the experience worth a while, you need to be careful of your expenses and know where each penny is going into. Especially if you are putting your hard-earned money and dreams into a car, it is more important than ever to get the best deal out there and not be scammed by smart salesmen.

Many institutions in India offer auto financing options, including banks, NBFCs, OEMs, and several other private sectors. And with growth in third-party companies comparing the prices and deals between these lenders, the work and research are now more easier and flexible without the need for an individual doing all the groundwork.

So, even before you go around shopping what should you know? What are some common mistakes that can take a heavy toll on your dreams? Here are some common mistakes that we have compiled for your understanding. When you understand how a car loan works, you will be at benefit from making better decisions than your fellow buyers shooting arrows into the unknown.

5 Auto Financing Mistakes To Avoid

Auto Financing Mistake #1 Over borrowing with zero down payment

If you are someone who has stable employment, an excellent credit score, and can repay their loan on even high-end cars costing tens of lakhs, you can likely pay 20% or even more on the down payment over the choice of your car, making it easy for the lenders to carry the additional costs. But if you are tight on money at the time of purchase and are going for 100% financing, overborrowing the loan can be an issue with repayment plans with higher interest rates and prolonged tenures.

This will also apply to those who go out of their budget to purchase unnecessary extended warranties, expensive premiums, or unwanted add-ons on their car, often marked up by hundreds of thousands on the car’s base price.

That said, we are not suggesting waiving the warranties and insurance policies. But cutting down costs here and there and making a budget will be easier on the repayment process than going overboard with expenses.

Auto Financing Mistake #2 Picking a longer tenure and focusing only on EMIs

Though longer tenure means reduced EMI, it is noteworthy to understand that you will pay more than you could have with a shorter tenure. With variable interest rates, going up and down, you will keep paying forever. Perhaps even wipe out your pockets clean with the higher interest rates you will be paying.

Therefore, just because the EMI sounds affordable and attractive doesn’t mean it is reasonable or you can keep paying because you can afford it with a stable income. In the bigger picture, you are paying more than you have signed up for. The money you could have saved on a better purchase, the money you could have taken out for a better purpose.

While typically a new auto financing loan lasts anywhere from 1 to 7 years, and a used car loan ranges between 1 – 5 years, you could put up a down payment you can afford during the initial purchase and enjoy your shorter tenures at flexible interest rates and affordable EMIs.

Auto Financing Mistake #3 Not Tracking Your Credit And FOIR

Not all organizations calculate your credit score. This does not mean that you shouldn’t, because you could have been getting a better deal on auto financing with a different lender out there who does calculate your credit score and offer lower interest rates on your loan for a decent credit holder. This could mean that anyone could boost their loan approval chances with knowledge and understanding of the current market.

Especially, you need to know that your credit score and FOIR (Fixed obligation to income ratio) are two of the most important factors to manage your repayment abilities. If you are someone with credit 750 or higher, you have hit the chance to hit a jackpot with lower interest rates, lower EMIs, and even higher loan sanctions than your fellow buyers who have a score of less than 600. And additionally, FOIR allows you to consider your monthly income, requested loan amount, and current liabilities, to determine your repayment capacity.

Keep in mind that there are several tools online where you can calculate your credit/CIBIL score and FOIR ratio (Fixed obligation to income ratio) before you go out shopping for a car. This way you can budget your purchase, calculate your EMIs, and make sure you don’t fall short of the mark and go bankrupt in the future unable to pay higher interest rates and EMIs.

Auto Financing Mistake #4 Not Reading The Terms & Conditions

It is a force of habit to skip the terms and conditions. Who will read pages long essay, right? And if you are one of those who sign off the loan papers without reading the fine print, this is for you. Once you have signed, the deal is sealed; and there is no going back. Whether the paper has or has not the deal you spoke about, the lender is not interested in the word of mouth or there are no records of your conversation anywhere. These terms and conditions are your final deal and proof in the future.

If the interest rates agreed to and the interest rates on the paper are different, ask your lender before you sign the agreement. Ask them about the hidden fee, late payment charges, processing fees, foreclosure fee sections; and the laws that would apply in any given case in the future. Your rights and their hold on your rights are what you should know before you find yourself with legal notice in hand because you haven’t read the terms and conditions that mentioned something about property seizure.

Auto Financing Mistake #5 Shopping Without A Pre-Approved Loan

Pre-approved auto financing is not a necessity. You could go shopping and then finance your car. But a pre-approved auto financing allows you better deals and options for your interest rates. Also, you could budget your car and not worry if the loan will get sanctioned or not. Whether you are taking a loan at a bank, credit union, or a private financier is entirely your choice depending on your credit report, employment stability, and the deals they have to offer. Therefore checking out your options and talking to the lenders before you shop for your car is the wisest option and choice to become a smart buyer.

But remember that don’t go around inquiring hundreds of banks and get a hard inquiry stamp on your credit report with a loss of credit points. Ask your lender if it is a soft credit inquiry or contact a third-party company to do the comparisons for you without impacting your credit score.

Auto Financing – Myths Vs Facts

The Bottom Line

In this blog, we have discussed 5 mistakes to of borrowers when auto financing. Avoiding mistakes when taking a car loan is easy with a little bit of understanding of what you are dealing with. If you have never taken a loan before, it will be a bit of hard work when understanding new terms and you are also at a higher risk of getting scammed if you didn’t know the rules of your game. You are not only putting yourself in between a financial risk but it will directly affect your credit score and future purchases if anything goes wrong.

Pay a few hundred to a third-party middleman and get all the details you need without hurting your credit score. This is the safest and fastest auto financing option out there because these people have been in the market for a very long time and they know the loops and deals better with their experienced and certified team members helping you out through the entire process.

If you are still unsure how or where to start when seeking auto financing, give us a call at Blue Carz and schedule a free consultation with our representative, who will take you through the entire process of availing of a loan.