Car Loan Tips

Welcome! And it’s a mighty good thing you’re here. Whether you’re about to apply for a car loan or still just thinking about it, you’re better off with a few tricks and tips up your sleeve before even meeting with your lender. It’s best to start the conversation about borrowing money with all the knowledge you can get your hands on, because being even a little clued up can save you thousands in the long run. Here we go

1. Get finance ready

Dealer finance may seem like a good idea at the time. Especially being a one-stop-shop for all your car needs! But when you do the sums and comparisons between dealer finance and lenders independent from your dealer, you may be better off in the long run.

Hard to believe if the dealer finance is offering you an interest rate that’s so low and hard to resist. The catch is, there is little room for negotiation on the actual vehicle, so you need to consider your options closely. Sorting out your car loan before you walk into a dealership will make all the difference to your negotiating power. They’ll see you as a serious contender if you’re not depending on dealer finance to convert the inquiry to a sale. Load up your pockets we say! This also applies when looking for a secondhand car, in regards to setting up your used card loan.

2. Special deals ain’t all that

Shame really. It’s so appealing when a dealership offers you free service for 5 years or up to 80,000km, isn’t it? Especially if you’ve got a fancyish car that requires dealership service to keep the warranty viable that costs anywhere between Rs.31000-63000 each service! What a deal!

So essentially you could be saving up to Rs. 3.5 Lacs in the first five years of your car's life, right? But with these kind of ‘special offers’, just as in the dealer finance scenario, you may not shave all that much off the price of the car, if at all. Wouldn’t you rather negotiate Rs. 3.5 lacs off the sale price and take your car to get serviced at an independent mechanic for Rs. 14000?

‘And for a limited time only.’ Heard that one before? Just to add to the pressure! And that’s the last thing you need. You want to make a decision about buying an expensive item at the right pace. Maybe rethink the special offer so you can stay level headed and negotiate the car you want at the price you can afford. No harm in trying anyway.

3. Fix that rate

Yes, some people prefer the excitement that a variable rate has to offer. Anticipating low rates for some or all of the term of their loan. But what if the RBI cash rate falls and your lender doesn’t pass on the benefits? Kinda feel like you’re being ripped off, right? What if the cash rate goes up and your lender generously increases their rate so that their profit margin stays the same while their customers bear the brunt of it, including you?! Not. Cool.

That’s kind of why I will continue to recommend its readers to opt for a fixed rate when given the opportunity. Not only will you (hopefully) secure a reasonable rate, but you will have the same predictable repayment every month. Month in, month out. It means you can budget for your other monthly expenses around your car repayment. If you always know what your expense are, you technically shouldn’t ever be out of pocket unless your income decreases or your other expense increase. Even more reason to avoid the gamble of a variable rate and opt for a safer, more predictable one.

4. Bonus payments

Well hey there extra money. The bonus cash you received at work, in lotto, as a gift or from your tax return. You know where you’re going to go? Well at least some of any bonus amount you receive from anywhere should really go toward any kind of debt you have. From credit card, mortgage to car loan repayment. Why? Because you can pay off your debt quicker, which also means less interest paid in the long run.

Look at it this way. The quicker you repay or pay off your car loan debt, the quicker you can save for other things... you know, like a holiday!

Here’s another way of looking at this - if you left your debts just as they are, repaying them at the same pace as always, and then you receive extra cash or income from somewhere, somehow. Instead of putting it toward your debt, you put it toward the holiday you’ve been wanting to go on. But your bonus is not enough, so you subsidize the trip with your credit card and get into more debt, increasing the length of time before you’re essentially debt-free and maybe suffocating your financial freedom in the meantime!

Phew. Got that out. Thing is, if you want the freedom and flexibility to repay more when you can, then you need to signup to the right lender and product offering. This is part of the open conversation you need to have with your lender before signing your name to that car loan. Now to work out a way to earn a little more income…

5. Car loan flexibility

Ever heard of a lender who gives out car loan that give you the flexibility of using some of it for other things like a small renovation at home or pay for your next holiday? I know, right? These loans are likely called personal loans. So if you want to borrow more than the value of your car so that you can have the freedom to do so much more, than a personal loan is the one you should be inquiring about.

What’s the catch? You’ll likely pay more in interest with a personal than if you were to secure a car loan. Although, yes you can use the value of the car as security, even on a personal loan, there is still a portion of the plan that may not qualify, so that rate will likely be higher.

6. Fees

It’s one thing to be charged an application fee, but an ongoing monthly service fee? For what? In case you forget your repayment and your lender needs to pay staff to remind you to pay or else? Well the best thing you can do about that is opt for a lender who has a low application fee and not monthly service fee if you can because word is out that you're never going to miss a repayment. Especially if you set and forget!