If you are planning to buy the car and are looking for financing options, applying for a car loan is your best bet. But things can get a bit tricky if you don’t have a clear-cut idea on how these loans work. Here are some of the most common mistakes that people make while taking a loan for vehicle financing.
1. Not Finding Out What Your Credit Score Is
Your credit score defines your ability to repay the bank. Banks and other lenders usually go through your credit history when you apply for a new financial product. If you don’t have a perfect credit score and apply for a car loan, there are chances of getting your loan rejected.
So before visiting the bank, go through your credit report. If you have a good credit score, then you can go ahead with your application. For those with a bad credit score, you need to look for ways to improve your credit score. It could take a couple of months, but it is worth the effort. If you are a part of the Debt Management Programme from AKPK, it is unlikely that you will get a loan, but you can approach the bank and check your options.
2. Not Negotiating With The Bank for a Better Interest Rate
Some banks are flexible when it comes to offering loans to their customers. If you have a good credit rating and you are looking for a car loan, you can negotiate the rate of interest or the tenure with the bank. Ask them if that is the best rate they can offer. Even a difference of 0.1% can help you save on a lot of interest.
3. Not Looking at Other Financing Options
Have you come across a car loan advertisement that offers financing at an attractive rate? Just by looking at the loan facility, you won’t know if there are better options available. There could be loans offered at better interest rates and at the tenure you are looking at.
You need to do a research by comparing the loan facilities offered by different banks in Malaysia. This will give you a better understanding of the market and you will be able to make a better decision.
4. Buying a Car When You Don’t Actually Need it
Most of us dream of driving our own car someday. But sometimes the time is just not right. There are many people who have credit card debts and who have taken more than one loan. For them, taking another loan is only going to burden them financially by applying for a car loan.
Understanding your needs is the key. You might need to save money for a short-term goal or to fund emergencies. Once you know what your needs and goals are, you will be able to manage your funds better. If you have taken many loans already, consider repaying the existing ones first before applying for a car loan. You’ll also come across new car models once the repayment is done!
5. Not Utilizing Loans Within The Lock-In Period Properly
When you compare the best available loan schemes, you will come across loans that come with a lock-in period and high early settlement charges. Sometimes, people opt for these loans, overlook the early settlement charges, and repay their loan within the lock-in period. When they do that, they are charged high early settlement fees.
This can be avoided if you understand the loan facility properly before applying for it. Go through all the fees and charges you need to pay, and all other terms and conditions of the loan. If you opt for a loan that comes with a lock-in period, even if you have enough money to repay the loan, wait for the lock-in period to get over. This way you won’t be charged any extra charges when you repay the total amount.
Make an informed decision before taking a car loan. Compare all the available car loan facilities before cashing in on one.