A car loan is an ideal way to finance the car you want to buy if you can’t pay for the entire amount upfront. You can borrow money from your lender, and repay it in installments with interest over an agreed period of time.
If you’re considering of taking out a car loan, here are some important things to consider:
The interest rate is a huge factor in your car loan because this will affect your monthly repayments and the overall amount of the loan. Take time to shop around and read the fine print before committing to a car loan contract. You want to get a loan that will suit your personal finances.
The interest rate is not the only thing included in your car loan. There will be extra fees and charges associated such as establishment fees, discharge fees, and late payment fees. This will vary from lender to lender, so it pays to know what these fees are.
Before taking out a car loan, make sure that you can afford the monthly repayments. To determine how much you’ll be paying per month, you can use our car loan calculator. You just need to input the value of the vehicle, interest rate, loan term, deposit, and balloon payment if applicable.
When applying for a car loan, your lender will check your credit score to assess your risk profile. A high score can give you the advantage of a cheaper interest rate. While a low credit score may get you rejected in your application. This means it's best to polish your credit rating before applying.
A balloon payment refers to a lump sum you pay to a financial institution once the car loan term ends. This reduces your monthly repayments, making them more affordable during the term. But once it ends, you will need to pay it in full.
As an example, your loan amount is $10,000 for five years, and your balloon payment is $1,000 or 10%. Your monthly repayment will be cheaper. But after five years, you will need to pay your lender the $1,000.
You have the capacity to choose how long you want to take to repay the car loan. You can repay it in three years, four years, and the longest is five years. Take note that a longer loan term will increase the overall amount repaid on the car loan even though the monthly repayment is cheaper.