Five Things to Consider While Applying for a Car Loan
A car loan or car financing is an easy way to buy a car when one can’t afford to pay the whole price at once. In simple words, auto financing allows people to purchase a car by borrowing from a bank and paying back in installments, with interest over a mutually agreed period. If a client defaults on his payments, it could lead to complication. So, in order to get benefited from a financing scheme that suits your circumstances, it is necessary to consider several things. The excitement to drive your new car is exhilarating, but it is very important to be prepared before going for a car loan.
Below are a few things to consider, while applying for a car loan:
1. Borrow as Low as Possible for as Short Term as Possible
Car loans are generally available with a loan tenure of 1 year to 7 years. The priority must be to borrow as low as possible for as short term as possible. The longer the loan tenure, the greater will be the interest you pay over the loan term. Typically, interest amount increases with the loan amount and loan tenure. So, you’ll have to give more interest if the loan amount is higher and the loan term is longer. However, it must be noted that borrowing low means that you’ll have to pay a higher down payment. Moreover, short loan tenure means higher equated monthly installment (EMI).
2. Consider Down Payment and Interest Rates
The duration of a car loan is crucial, because it determines the total cost of the car loan. The loan tenure and EMI (equated monthly installment) are inversely related. The monthly installment will be quite low for a long tenure loan and vice versa. Down payment also impacts the car financing plan in different ways. A down payment helps in decreasing the loan amount and monthly installments. So, before applying for a car loan, one must consider down payment and EMI.
3. Compare Different Financing Plans
Almost all major banks are offering car financing in Pakistan. A few prominent schemes are HBL Car Loan, Alfalah Car Finance, Meezan Bank Car Ijarah and UBL Drive. While applying for car financing, it is important to know car financing options of different banks. Car Loan Calculator can be used for comparing different financing plans.
Car Loan Calculator
Car Loan Calculator, normally available on bank’s website, is an online tool that can be used to calculate different financing options. Car loan calculator can help in comparing financing plans of different banks. One can input different parameters such as car make, car version, car version, loan tenure, and down payment to get interest rates and different financing options.
The table below gives approximate monthly installments for this scenario:
For more precise information, you can either use car loan calculator available on PakWheels.com or visit the bank’s official website.
PakWheels.com has all the information regarding new and used cars. You can visit PakWheels.com to get exact information regarding prices and specs of new cars. Moreover, you can use Used Car Price Calculator available on PakWheels.com to get the prices of your desired used car.
4. Consider Early Payoff Options and Penalties
Banks give an option of early car loan payoff. However, it is possible that there might be some penalty for it. While choosing a car loan, it is recommended to get information regarding early payoff and penalties on an early payoff. This information will not only help you in choosing perfect car leasing program but will also save you from complexities at the time of early payoff.
5. Apply for the Loan
After gathering information regarding auto financing plans of different banks, it is time for choosing the most suitable one. Generally, banks need proof of income, national identification card (NIC), and passport size photographs.