Puneet Sharma
Thinking of buying your dream car and actually buying your dream car are the two different things. While thinking can begin at an early age, planning to buy one takes you a step closer to adulthood. But, that doesn’t allow you to be unreasonable with your finances and getting yourself in debt soup for the next few years.
If you are buying a car for the first time than it is advisable to do your research beforehand and consider important aspects of the same like the finance options that you have, your budget and most importantly the car that will meet your family needs. Industry experts suggest that an individual must think about the ways of paying for the car before thinking about buying a car or visiting the car showroom to make a selection.
For most people getting your vehicle financed through a car loan is the most feasible and easy option because then they will not be burned with full payment and can repay the amount in easy monthly installments. However, getting mystified about the car loan application process is not something that is happening with you as a first-time car loan applicant, and it happens to everyone. So before you begin your car loan journey, here are the questions that you must ask for a car loan.
What will be better, dealer financing or direct lending?
When you consider yourself to be ready for loan application you also need to decide from where you will be applying for your first car loan. You will be flooded with a plethora of options starting from your bank or credit union, which is known as direct lending or finance through the car dealer itself. Choosing direct lending as a car finance option is like opting for a pre-qualifying mortgage. Here you get the money first, and then you head out to buy your vehicle with a set budget in your mind. If you are blessed with good credit ratings, you will have an option to contact several money lending institutions and select one that is offering the best interest rate and repayment terms that suit your requirement the best.
Whereas, the scenario with dealership financing is a bit different, here you will visit the showroom, express interest in a vehicle of your choice and then apply for finance directly through the car dealer. Most of the car dealers offer to finance through banks and credit unions only. The catch here is that the car dealer may not always offer you the best interest rate and repayment terms, so you must know how to negotiate.
What is your credit score?
What is a credit score is one common question that many of the first time car loan applicants forget to ask themselves? Not knowing your credit score reduces your chances of negotiation with the lending institution or car dealer. Your lender will check your credit score, which is a numerical rating between 300 to 850, to determine whether it is safe to lend you money or not. The higher the credit score, the brighter your chances of getting the finance for your car. Some money lenders also use credit score as a measure to offer you best interest rate on your loan.
As a consumer, you are entitled to get a copy of your credit score from the reporting agencies that maintain a credit score of every individual. So, before you apply for a loan or make any big purchase ensure to have your credit score reviewed. If your credit score is higher than what you have expected, you will get leverage in obtaining car loan over other applicants.
Am I being realistic with what I can afford in the long run?
Putting your monthly budget together and then subtracting it from your monthly income will give you the surplus amount that you have to pay for loan EMI. If you think you are not able to afford the new monthly payment, then plan your budget again and cut back on other things. Write down expenses which can be cut like rent, entertainment, clothing, etc. Now add the expected monthly EMI of your car loan to the budget. Make sure you consider other factors as well like maintenance, insurance, and fuel. Subtract these from your monthly income as well and then see the leftover amount. Is it sufficient to pay the monthly EMI for coming few years?
You might have set your heart on that newly launched SUV or a sports car, but if it does not fit in your budget than it is not realistic to spend on that, especially when you are a first-time buyer. For a first-time car buyer, a used car looks like a better option, to begin with as the monthly EMI will be lesser on it and it will also give you the opportunity to save for a new car that you may buy in the future.
