10 Common Auto Loan Mistakes You Should Totally Avoid
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Team CARS24
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10 Common Mistakes to Avoid When Getting an Auto Loan

Team CARS24
editor

Most people today aspire to own a car at least at some point in their lives. And in most cases, people find auto loans to be the most convenient way to purchase a vehicle. Purchasing a car on finance is not at all a bad deal as long as you’re careful about a few aspects. The right car loan can not only help you avoid spending all your savings, but even help you with flexible payment plans and numerous other such features. However, many a times, car buyers make some common auto loan mistakes that they should have stayed clear of. Here is a list of 10 of these –

Common Car Loan Mistakes

Also Read- Selling A Car With An Existing Loan – Step By Step Guide

10 Common Auto Loan Mistakes You Should Totally Avoid

  • Not Weighing All Options

This is one of the most common mistakes people make when applying for a car loan. Many dealerships have tied up with a particular bank. And in such cases, the salesman push you to opt for the services of that bank citing it to be the best option. But in most cases, it’s not true. Hence, it is always a good idea to speak to multiple banks and even pit them against each other. There are chances that your own bank in which you have a savings or a current account would offer a fantastic car loan. Hence, never hurry and research well before choosing a bank to take a car loan. 

  • Not Knowing Your CIBIL Score

Most of us have no clue about our CIBIL scores. This is a bad idea as a credit score clearly reflects how a particular bank would deal with you when giving you a loan. The lower the credit score, the higher will be the car loan interest rates. In fact, many banks simply avoid giving loans to people with really low credit scores. Hence, find out your CIBIL score for car loan and then apply for a loan after careful financial planning. 

  • Not Accounting the Total Repayment You Would Make

Many people simply choose on a car loan depending on the monthly instalment they would have to pay. While it is important to know the monthly payment one would have to make as it helps him or her plan his finances accordingly, it’s also important to note the bigger scheme of things. The entire cost of the car loan, which includes the borrowed amount (principal) as well as the interest, is easily a lot more than what one borrows. And longer the loan tenure, higher is the interest one is bound to pay. Hence, one should avoid one of the most common car loan mistakes and decide on the loan tenure on the basis of the interest he’s comfortable paying.

Also Read- How to Get Loan Against Your Car? Eligibility, Documents, Procedure and All You Need to Know

  • Taking a Longer Loan to pay Small EMIs

As described above, the longer the loan tenure, the higher is the overall interest that is paid. Of course, the EMIs are smaller for longer loan tenures but you end up paying back a lot more in the long run. So, basically, the longer the tenure, the longer you pay the loan. And longer the loan tenure, more you end up paying back to the bank. 

  • Choosing Zero Down Payment 

Zero Down Payment is basically a gimmick that many banks use to make you borrow a larger sum. This eventually means paying a larger interest. While zero down payment schemes seem attractive, opting for them is easily among the most common auto loan mistakes one can make. Hence, it’s always a good idea to make the largest possible downpayment. This leads to lesser borrowing and hence, lesser interest. 

  • Not checking pre-approval loan availability 

Most banks offer pre-approved loans to their preferred customers that have good credit scores. Such offers are always a bit better than the usual loan schemes offered by the banks. Hence, in case you’ve been a good customer of your bank, there are high chances you would have a pre-approved auto loan scheme on offer. 

  • Rushing the Process

Another common mistake people make while opting for a car loan is to rush the entire process. By rushing, we mean making all the mistakes listed above. Hence, it pays to take your time, contact multiple banks, and choosing the best offer. The first offer you get, which is often from the bank the dealership has tied up with, is not necessarily the best offer on the table. Also, remember that the salesman would always try to rush you into taking a decision. However, step back in such a situation and take your time before deciding anything.

  • Not Accounting for Future Financial Changes in Your Life

One should always account for the upcoming financial changes in his life before opting for a car loan. As one needs to pay a significant portion of his salary in EMIs, he or she should always think about whether the financial situation would stay the same in the coming years. When thinking about this, one needs to factor in aspects like market dynamics, inflation and job stability. 

Also Read- Which Car Is Right for You: New or Used? – Here’s The Answer!

  • Not Considering Early Pay-Off Penalties

Only a few banks in India allow free partial payment/early repayment of auto loan. Most banks will have you pay a penalty in case of early repayment in part of in full. So, in case you sign up for a loan tenure of 5 years and you want to pay off your loan in, say, 3 years, the lender will levy a penalty to make up for the interest he would losing. This is easily among the most common auto loan mistakes you should steer clear off. 

  • Not Attempting to Refinance a Bad Loan

 In case you make any of the common car loan mistakes listed above, you can still get yourself out of a bad situation by refinancing the loan from a different bank that is ready to offer better terms. You can either opt for a loan offer that has lower car loan interest rates, or, maybe, increase its loan tenure in case you’re finding it tough to pay the monthly EMIs. 

Conclusion

Always remember all the above points before you opt for a car loan. Only a careful selection of the auto loan offer will help you benefit from the finance scheme. So, always plan keeping in mind aspects like loan tenure, car loan interest rates, future financial requirements, and other factors listed above. Saving that amount of money over the life of the car loan is definitely worth the research and time it takes to refinance and find a better loan.

FAQS

Q- What does no penalty for early pay-off mean?

A- This simply means that the bank won’t levy any penalty to make up for the loss in interest it would suffer in case you decide to pay off your loan earlier than the pre-decided loan tenure.

Q- Can I refinance my auto loan?

A- In most cases, you can refinance your car loan. In fact, it’s a great idea to refinance in case you make any of the common auto loan mistakes listed above.

Q- What are some good auto loan companies?

A- Most leading banks in India offer great auto loan schemes. These include public sector banks like SBI and PNB as well as private players like ICICI, HDFC, Axis Bank and Yes Bank.

Q- Can you negotiate car loan interest rates?

A- Yes, it’s always a great idea to negotiate your auto loan interest rates. In fact, it’s even better to get loan offers from multiple banks and try to play them against each other in a bid to provide you with the most attractive offer.

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Est. Reading Time:
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