Considering A Car Loan? 7 Questions to Help You Decide

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By guest writer Chiyako Ikeda

With various car loan deals available today, it can be easy to immediately say “yes” to the most tempting offer presented to you. But before you sign any agreement, take some time to mull things over. After all, with an auto loan, you will have the car of your dreams or, at the very least, one that meets your needs. However, you will also have to spend a couple of years or more paying for this expense. Before you check your car loan eligibility, make sure you’ve answered these important questions first to be 100 percent certain that you are making the right decision:

1.   Why do you need a new car now?

This is a simple yet very important question that people thinking of getting a new car fail to answer or even ask. If you already own a car, you need to identify the specific reasons why getting another one is something that you need to do now. If your car keeps breaking down, is contributing to air pollution, and is no longer safe to drive, buying a new vehicle is a smart decision. But if you want to have a new car because you want to look cooler or simply impress people, think twice before making a decision.

2.   Why can’t you use your savings to buy a new car?

Paying for a new vehicle in cash and in full is certainly the most cost-effective way to own a car. However, not everyone has enough money in their savings account to do this. And even if you have enough savings to buy a new car, emptying your bank account for a car isn’t the smartest thing to do. After all, everyone needs a financial cushion in case of an emergency. If you really need a new car, even if you have enough savings, don’t rule out taking a car loan. As long as you study the different offers carefully, you will find an option that won’t leave you worrying about high interest rates.

3.   Do you have a good credit history?

You need to have a good credit history, if you plan to apply for an auto loan because lenders use the credit report of applicants to check how consistent they had been in repaying credit card bills and loans in the past. If you don’t have a favorable credit score, you may be asked to look at other financing options.

4.   Who are the best lenders to approach?

When applying for a car loan, you will have a better chance of getting the best deal if you do your research on different lenders and their offers. If you already have an account with a particular bank, check the types of car loans they offer. Find out what other banks offer as well. Once you have exhausted your search, make a list of the most recommended establishments. Request for more details on their loan deals and carefully go through the terms and conditions.

5.   Should you get a short or long-term loan?

Once you have set up your budget and have an amount in mind, you should think about how long you want to pay the loan. When answering this question, keep in mind this basic concept: the longer you take to pay the loan, the more interest you will eventually have to pay. 

6.   What fees are included in the car loan?

Before taking out a loan, you need to know everything that will be covered by your initial and monthly payment. Some of the usual charges that you may have to pay include the following:

  • Loan processing fee
  • Documentation charges
  • Amortisation schedule charges
  • Swap charges

Before choosing your lender, compare all these additional fees and charges first.

7.   Do you qualify?

Aside from having a good credit score, you need to submit certain documents to show that you have the ability to pay back the loan. Some of the documents or requirements you may have to submit are:

  • Proof of income
  • Proof of employment stability or permanence
  • Business stability proof or ownership proof (if you are a business owner)
  • Bank statements

When you’re dealing with the right loan provider, applying for a car loan can be a straightforward process. But to be certain you are making the right move, make sure you answer all the important questions first, and ensure all your responses indicate that taking out a car loan is the right way to go.

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