Unsurprisingly, many people in critical circumstances keep overlooking important considerations, which leads to problems down the line. Borrowers who take out car loans are no exception. Even though it’s an important commitment, it might limit your financial freedom if you are not cautious and well-informed. Since you’re here, that means you’re trying to avoid the same problem. To help you with that, we’re breaking down the important details of car loans you should pay attention to.
Interest rates, terms, and hidden fees and charges
Interest rate terms
Having a loan commitment requires you to be thoroughly aware of the three loan terms and conditions, the interest rates that will be charged, and the fees that will arise at the end of the due date.
Interest rates and loan terms have a direct impact on the final cost of the car. When applying for a loan, you must spend time researching and comparing the interest rates offered by lenders. Even a slight difference in interest rates will determine your monthly repayment compared to the total amount paid during the loan duration.
Assume you are just collecting two interest rates from two lenders, each of which is 5% and 7%, respectively. If you plan to take out a $30,000 loan over five years, the 2% difference in interest rate might result in almost $1,500 in additional interest payments. That is why, by taking the time to conduct research and comparisons, you can determine which option will not cost you more.
Hidden fees and charges
Many borrowers fail to ask their lenders about any hidden fees or charges that may apply. Quite often, these fees will startle borrowers long after they have signed car loan agreements. And more often than not, it’s because they don’t pay attention to the fees and charges that must be mentioned after interest rates. In the context of car loans, there are loan processing costs, often known as early repayment penalties. And if you overlook this, a large fee might raise the overall cost of the loan, affecting your budget.
Loan duration, depreciation, and repayment options
Loan duration should be aligned with depreciation
You must know that a car depreciates in value throughout the loan, and it depends on the type of car it is. To avoid getting “upside down” on your loan, you must fully understand the type of car you are about to buy and double-check the loan period.
Keep in mind that the longer the loan period, the more you will owe on the car than it is worth because of depreciation. Choosing a loan period of more than five years for a depreciating car will result in you borrowing more than the car’s market value. On top of that, another drawback is that it could be difficult to trade in your car in the future.
Better choose biweekly for the repayment
Again, there is a repayment if you are committing to a loan. We assume that you have already reviewed your financial situation. So, you have to consider how often you can repay. If you can repay biweekly, that is good. The more you speed up the repayment, the more you reduce the overall interest paid over the loan term.
Insurance requirements
Nothing for a product that arrives without insurance. Car loans also require sufficient insurance to safeguard the lender’s investment. The cost of insurance will return to the total cost of ownership.
Let’s imagine you bought a sports car and were astonished by the costly insurance costs required for coverage. Remember that additional insurance costs raise the total cost of owning the vehicle and have an impact on the borrower’s budget. So, have you examined how much insurance you’ll need for your car type?
Conclusion
By being aware of the points stated above, you will most likely prevent the additional costs that may surprise you in the future. Now that you know these things, you can confidently inquire from an authorised money lender in Singapore regarding car loans and start driving your dream car.
