Buying a car can be a very exciting process, but it’s also prone to being a stressful one. There are a few things you should make sure you’re aware of before signing your car loan agreement.
How much will you pay in interest?
Before signing a car loan, find out how much interest you’ll pay over the life of the loan. Interest rates on car loans can vary significantly depending on things like your credit score and whether you’re getting a secured or unsecured loan. When you’re comparing loan options, make sure you don’t just look at the lender quoted Annual Percentage Rate (APR), but also that you’re looking at the comparison rate too. The comparison rate is a better indication of what you’ll actually be paying as it includes almost all of the fees and charges that your loan will incur.
You can use Driva’s car finance calculator to work out how much your monthly repayments might be.
How long is your loan term?
You should also make sure you know how long your loan will last. Ideally, you want to take out a car loan for the shortest term possible; this means less interest in total. When you’re comparing car loans, ensure that you don’t forget to take your repayment period into account. Be wary that though a longer loan term will make your monthly repayments smaller, you’ll end up paying more over the life of the loan.
Will your repayments change?
Your income, expenditure and other personal factors may change over time making it important to know whether your monthly repayments will change in the future. Loans with a fixed repayment period ensure that you’re not caught off guard by any unexpected changes to your car loan repayment amount. Meanwhile, variable interest rates can change throughout the duration of the loan (which can be good and bad!), making it more difficult to budget.
What fees are involved?
When you’re buying a car, there are quite a few fees to consider. Make sure you know what all of these are before signing your agreement so that you can plan for them. They may include entry fees, exit fees, monthly fees or early repayment fees. On the other hand, some lenders may offer certain fees to be waived if you pay your loan off quickly.
What happens if you default?
A loan agreement is a legal contract and failure to meet your obligations under the terms of that contract can have serious consequences. Make sure you understand what might happen if you miss a car repayment before signing any contracts as it could seriously impact your credit rating and affect other financial decisions in the future. To help mitigate the risk of missing a payment, you should make sure your budget for car repayments and stick to it.
By knowing all of this information, you should be able to make an informed decision when applying for a car loan. This will help prevent any unwanted surprises further down the line