It is everyone's dream to own a car, and people take out loans in order to be able to buy a car. However, great care is needed before applying for a loan to ensure you can pay comfortably without straining or neglecting other basic needs. You need to be sure of what you are doing before committing to sign any loan agreement.
There are a lot of expenses that accompany a new car, and therefore you need to ensure you have the ability to cover all the expenses.
What do I need to consider before taking out a car loan?
There are five key factors to consider before applying for a car loan:
- Annual interest rate
- Monthly interest rate
- Insurance costs of the car
- Cost of fuel
- Repair and maintenance cost
1. Annual interest rate
It is good to note that annual interest rate is not similar to APR which encompasses other expenses related to the loan. Annual interest rate has an effect on the total amount you spend on your vehicle each year. A high interest rate costs buyers a lot of money than a low interest rate.
It is always advisable to ask about the annual interest rate before making a loan agreement. Elevated interest rate increases the value of the car you want to buy, this can lead to default in the payment.
2. Monthly interest rate
Monthly interest rate isn't the total monthly payment, but refers to the rate by which the monthly car payment tax is calculated. The monthly interest rate can alter your monthly payments significantly.
It's good to inquire about these figures from the agents providing the loan before purchasing the car. You need to be proactive in the purchasing process in order to get an affordable monthly interest rate. It's good to note that monthly payments increase as a result of monthly interest rates.
3. Insurance costs of the car
The insurance cost of a car difference is determined by the kind of coverage selected. There are some auto loan firms that require a loan applicant to have full coverage. Ensure you enquire with many insurance agents and ask the rates charged before purchasing the car. The most advisable thing to do is to use the same firm in order to obtain a reduced rate on your car insurance.
4. Cost of fuel
Before applying a loan for a car loan it is good to consider the fuel cost you will incur. For instance, it is good to consider that a new car might require expensive fuel type, the cost of fuel might rise as times moves and understand the fuel mileage of the car you intend to purchase.
5. Repair and maintenance cost
The expenses related to car repair cannot be predicted. The cost always rises when there are unexpected things that happen. Even if your bank has a lot of money, you may default your loan payments if you take some money from the bank account to handle such car emergencies. This will also affect your credit score. Therefore, it's advisable to set some money aside to cater for unexpected costs.
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