Let's Bust These 5 Common Myths About Car Loans

Thanks to affordable car loans, owning your dream car in today’s world has never been this easy. However, as a customer, you must make sure that you thoroughly understand the loan terms and policies before signing the papers. We understand that no one likes reading the fine print, but you should do your due diligence. With that in mind, let’s take a look at 5 common misconceptions surrounding vehicle financing.

1: Car Loans Cannot be Availed for Used Cars

Many people believe that they can apply for a car loan only for brand new vehicles. This is not entirely true. Second-hand cars can help you save a lot of money - there is an entire industry in India that thrives on this very concept. There are many used car showrooms and dealerships across the country that will happily finance your car at attractive interest rates.

The only thing you need to keep in mind is the quality of the car and reputation of the party you are dealing with. After all, you don’t want to be stuck with a car that breaks down every now and then, do you?

2: It is Better to go for 100% Financing

The idea of having your dream car financed 100% is definitely a lucrative one. You don’t have to tap into your savings, and you can just have the bank/dealership cover your entire costs. While this sounds good in theory, it seems like a deal too good to be true. Parties that are willing to fund your car loan entirely are likely to charge you high rates of interest.

In practice, it is feasible to go for 80-85% financing, with the rest coming out of your own pocket. In fact, the more you can put down up front, the better! It ensures that you don’t pay a significantly high interest over time; while for the lenders, it reduces the risk factor.

3: You Will Not Find a Better Deal Elsewhere

Often, car dealerships can be quite aggressive when it comes to roping in new customers. They will offer you an attractive deal and tell you that you will not get a better deal anywhere else. But as a smart, savvy customer, you should do your research and look around in the market. It is always better to work with a dealer who understands your requirements and offers you a deal that fits perfectly into your financial landscape.

Remember - you will be clearing your car loan every month in the form of a fixed payment. Ideally, you should look for a deal that allows you to do so comfortably, without making a major dent into your savings.

4: Go for a Car Loan Because You are Eligible for One

You must have received plenty of emails and messages stating that you are eligible for a car loan at so-and-so interest rate. At times, it can be quite tempting to cave into these messages and just apply for a car loan! But before you do that, you should ask yourself if you really need a car or, more importantly, can you afford one. This line of questioning will always keep you on your toes and prevent you from making costly mistakes when it comes to vehicle financing.

5: You need to make a Big Down Payment

A common misconception about car loans is that you need to make a huge payment upfront before you can avail the loan amount. While this is true - you do need to make a down payment, the amount need not be necessarily high. With most banks and dealerships financing up to 85% of the loan amount, you need to pay only 15%. So, if you are buying a car worth Rs.5,00,000, you need to pay only Rs.75,000. However, if you can make a large down payment up front, you are likely to get a better deal.

There is no doubt that car loans can be tricky business. However, with some solid research, you can be certain of landing a good deal. Always work with a reputed dealership and evaluate all your options thoroughly. It will take some effort; but in the end, you will get a deal that works best for you. With the auto finance landscape in India now becoming more transparent, these myth-busters serve to keep you on your guard, not ward you off.

Know more about how to apply for used car loan with AU Small Finance Bank 

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