So often in the urge of having the dream car, we end up doing things which could have been done easily avoided had we been slightly smarter. My indication is towards the hidden loss that comes in the form of offers like zero down payment, discount, etc. Actually, the manufacturers and dealers first lure you with such offers and then make your pocket extremely lighter in the form of higher interest. Plus, many don’t analyse the financing options before choosing the car, ending up worsening their financial lives. We will today discuss in detail regarding the common car loan mistakes that people generally commit and also suggest the necessary solutions for the same.
Longer loan tenure
Avoid the temptation of choosing the longer loan tenure for the sake of lower payout in the form of equated monthly installments (EMIs). The reason being the excessive payout that you will end up doing in the form of interest at the end of loan tenure. So while you opt for car loan, try to pick the shortest term that you would be comfortable with. As car loan can be given to a maximum period of 7 years, you can easily cut it down to 5 years and save the unnecessary interest payout from your pocket. Let’s understand the mathematics of EMI and interest with an example. Assume that Rohit and Shikhar take home a salary of Rs 30,000 per month.
Situation A- Rohit takes a car loan of Rs 5,00,000 for 7 years
Total Interest-Rs 2,00,000
Total amount repaid-Rs 7,00,000
Situation B- Shikhar takes a car loan of Rs 5,00,000 for 5 years
Total Interest- Rs 1,35,000
Total amount repaid- Rs 6,30,000
Net saving of Shikhar over Rohit in terms of interest- Rs 2,00,000-Rs 1,35,000=Rs 65,000
Not paying attention to financing options
We all tend to be so possessive about the car that we forget to choose the suitable financing option and end up paying more. It is imperative you keep searching for the deal that will not only meet your dream of car but also fit into your budget. You can go online to check the interest rates, processing fee, foreclosure charges of various banks across India. Select the lender that charges you the least on car loan.
Choosing no down payment option
People start flocking all the way to showrooms to take away their dream car moment they hear zero down payment option. But they are actually caught in the web of a gimmick played by the car manufacturers and dealers to entice customers. The deal in fact is pay less now, more later. Zero down payment means that you will end up paying higher number of EMIs. As a result, the interest payout from the pocket will be significantly higher.
Influenced by discounts
Don’t get fooled by the offering of attractive discounts on cars. It may save your money, but most of the times, discount would either have been compensated with the upfront down payment or adjusted against the interest outgo showing a lower rate of interest. Make sure you carefully assess on whether to avail upfront discount or let it be adjusted against the interest outflow based on the loan amount.
Lured by add-ons
Lured by the add-on product with their car value, people end up paying more number of EMIs. So, you first assess the requirement of accessories and then figure out whether to include charges of the same with the loan amount or not. Don’t take accessories if you do not require and save extra interest that will come with the same.