What You Should Know Before Applying For A Car Loan

When you want to apply for a car loan, you should work out your budget and know what you’ll be expected to pay back in Monthly, Fortnightly or Weekly repayments. Also, before you go to look for your new car, make sure you already know the type of loan you would like to take out for that car. Get a loan that comes with affordable interest rates, low fees and most of all flexible repayment options.

What type of car loan should you choose?

There are generally two types of car loans you can choose: secured and unsecured car loans.

With a secured car loan, the borrower puts the car as security for the loan until is fully paid out. If he defaults on his payments, the lender can repossess the car and sell it to recover his money.

With an unsecured loan, the borrower does not have to provide any form of security for the loan. An unsecured loan typically comes at higher interest rates than a comparable secured loan.

What term suits you?

Car loans are usually given for terms ranging between 1 to 7 years. If you choose to pay the loan in one year, your instalments will be considerably higher but the interest expenses will be low. On the other hand, extending your repayment period will accord you lower instalments but the interest cost will be higher.

Ensure that the loan is flexible enough for your situation such that emergency situations will not disrupt the payment schedule.

Interest Rate

Banks use different criteria when determining the interest rates to offers. The main considerations are your credit worthiness and the type of loan you are taking. Lower interest rates are given to those who are more credit worthy as they are not likely to default on their payments.

Rates are not fixed and you can negotiate further with the lender. This is one of the advantages of arranging for your own loan to buy the car. The car yard dealer may offer you a loan at a much higher interest rate than you could get if you arranged for your own loan.

Most lenders offer variable interest or fixed interest loans. Both options have their pros and cons. Consider anticipated market fluctuations in the interest rates and the term of the loan before choosing.

What fees are you liable to pay?

Car loans come with a number of fees that may vary from lender to lender. Contact your lender to know the exact fees you will be required to pay. The common types of fees include:

a) Establishment Fee-A fee charge to establish the loan. This is usually added o the loan amount.
b) Ongoing Fees-This is usually a monthly or account keeping fee.
c) Early Exit Fees-If you exit the loan early, you are likely to be charged a fee by the lender to ensure their profit for establishing the loan.
d) Late Payment Fees-You will be penalised for making later payments.

How do you apply for a car loan?

When you apply for a car loan, the lender will ask for your personal and financial details in order to make an initial assessment. This will enable them know whether you qualify for a loan and how much they can safely lend you. The assessment takes a short time, usually 10 to 15 minutes, and can be done online.

Lenders use a computerised process to determine how much you can afford to repay. If you qualify for a loan, you will be informed and the next stage will be to prove the information that you provided.

What documents will the lender require?

Before your loan is approved, you will have to provide proof of identity, residence, assets, liabilities and employments and income level.

The level of proof required varies across lenders. Some of the common documents that are acceptable include a passport, driver’s license, birth certificate, phone bills, rates notice, employment contracts showing the time and level of income with an employer, ATM cards, rental agreements, pay slips and others.