Everyone wants to buy the right car at the right price. But it’s only you who can determine how to go about the financing part. Before you look at ways to finance your purchase, here are some things you will need to consider.
Take Stock of Your Finances
First things first. Make a list of all your monthly expenses. Be sure to include all expenditures, from the biggest to the smallest. Once you have the numbers, compare your expenses to your income. Are you happy with what you see? If you are able to save at least 40% of what you earn each month, then you can proceed to the next step. It is important to understand whether you can afford to buy a car before actually buying it. Your finances will also decide if you should opt for a brand new vehicle or a second-hand one.
If your finances don’t allow you to buy a car or apply for a car loan, you can look at ways to limit your expenses. You also have the option of saving up for a year or so to be able to make the down payment.
Choose a Car that You Like and can Afford
Yes, it would be fantastic to own a luxurious, high-end car. Who wouldn’t like that? But let’s not get carried away. While it is very important to buy a car that you love, you also need to see if you can afford it. Affordability doesn’t just end with the price tag. You must consider the maintenance cost and other expenses you could incur in the future. With detailed research, you might be able to strike a balance between these two aspects.
Having said that, if the car that you like exceeds your budget by 1% or 1.5%, then you might as well go for it. You can look at ways to increase your budget to accommodate the car by saving in other areas.
Now that you know your budget and the car that you want, let’s talk about car loans.
Applying for auto financing is a good option if:
- You don’t have the funds to make the full payment for the car.
- You don’t want to pour all your savings into one big purchase.
The main thing you need to know about auto loans is that the amount is issued against your car. This means that the bank will use your car as protection if you are unable to repay the loan. Banks have the right to repossess your car to cover their loss.
Applying for a loan is easier said than done. First, you need to be eligible to get a loan. What do banks look for in order to approve your application?
Your credit score
A favourable credit rating goes a long way in getting approval for your loan. Although car loans are secured lines of credit, you still need to have a good score to get a loan.
Basic Eligibility Criteria
Banks require you to meet their eligibility criteria for age, nationality, and income. Make sure to check these requirements before you submit your application.
Your Repayment Capacity
While assessing your ability to repay the loan, financial institutions look at your income, whether you have any other loans or credit cards. This is done to make sure that you are not overburdened with debt.
If you have ticked all the above boxes, the next thing you need to do is choose the right loan. But how do you determine which one is ideal for you? Here are some of the factors that you need to keep in mind.
- What percentage of the cost will the loan cover? For example, in Malaysia, you can get car loans that cover around 80% to 90% of the cost of the car, while you will have to put in the remaining amount.
- Find out the interest rate and how much you will have to pay each month. Figure out if you can afford the monthly instalments.
- Understand the loan repayment plan. Can you foreclose the loan before the end of tenure without incurring a penalty?
To find the best car loan, you can visit a financial site that allows you to compare offerings from different banks. If you don’t want to go in for a new car, a second-hand vehicle is also a good idea. Although banks do offer financing for used cars, the terms and conditions and loan amount will differ. Irrespective of which car you want to buy, it is important that you do a detailed research beforehand.
Siddharth is a Content Marketing Journalist at BBazaar.my, an online consumer financial marketplace in Malaysia that will help Malaysians to make the smart choice and save money with personal financial matters. Stay tuned and learn about current financial market and products including credit cards, personal loans, insurance and more.