In modern times, owning a car as a means of transportation has become a necessity. It helps your mobility, lets you travel without the hassle of commuting in buses or trains, and owning one comes easy. Thanks to car loans, you can now have your dream car in an instant. However, with so many tempting advertisements for car loans, you’re not really sure which car loan to choose. Are all of these right?
In this article, we will tell you five common misconceptions most people have about getting a car loan and explain each item to guide you before you apply for a car loan.
1. 100% Financing
You might have seen flyers, TV commercials, and billboards showing a particular financing company supporting a 100% car loan financing. Admit it or not, you are sold on the idea. Who wouldn’t like a 100% financing for their car loan? But obtaining your dream car with a 100% financing is a lucrative idea.
Try to look at this perspective, if your financing or lending company supports a 100% financing, that just technically means you are paying them a higher interest rate- which is a burden to your savings.
But if you choose to have at least 80-85% financing coverage with a minimal amount coming from your pocket in the form of downpayment, you’ll get a reasonable interest rate without hurting your savings.
Don’t be too tempted by this kind of promotion. If you are hesitant or have questions about getting a car loan, you can refer to CreditMadeSimple. They offer assistance to aspiring car owners who hold doubts about car loans. You can check out this website and reach them personally.
2. No credit history means no car loan
This might be upsetting to hear, but don’t fret as this is only a misconception many aspiring car owners have heard. In fact, taking out a car loan is an excellent first step to build up your credit history and credit score.
If you are a fresh graduate or a young professional, do not worry, you can take out a car loan even without a credit history.
Taking out a car loan is a long term financial relationship, as the credit score may influence your interest rate. You don’t need to worry. Even without a credit score, you can get your application approved.
However, expect that your lender will require your full responsibility in making sure to meet your repayment schedules. Make sure you have an adequate source of funds to ensure your regular repayments.
3. Requires to put down a large down payment
If you look at it this way, a large down payment will grant you a lower interest rate and monthly repayment since you already placed down a chunk of money to be deducted to your car’s principal amount. However, putting down a sizable down payment is not necessary and not required in getting a car loan approved.
As a trade-off for not placing down a downpayment, you’ll face much higher fees in the long run compared to you placing down an adequate amount as your down payment. But if you don’t have the money and need to acquire a car as soon as possible, you can still apply for the car, but you need to handle the fees in the future.
4. No car loans on a used car
It can be a bit disappointing hearing about this one since second-hand cars are much cheaper than brand new ones. But hold that thought, if you have enough savings for a second-hand car and have the rest covered by your car loan, you can use it.
Applying for a car loan on a used car is a win-win situation. You can enjoy lower repayments, competitive interest rates, and repay the loan faster.
If you are eyeing that used BMW, then go ahead and apply for it. Remember, a car loan can be used on both brand new and used cars.
5. You are eligible for a loan
You might occasionally receive spams of emails and messages telling that you’re eligible for car loans and can handle the interest rates. Sounds tempting, right? But don’t be so jump on that invitation right away.
Reconsider all your expenses first, balance out all your bills, and check your funds if you can genuinely afford to get a car loan. You’re the only one who knows if you’re eligible for a car loan or not, with whatever interest rate they offer.
There’s a lot of common misconceptions about getting a car loan, and many offers are too tempting to ignore. Yet, you need to be smart, especially if there’s money involved in the transaction. You cannot afford to let lending companies trick you into getting a loan. Do your research and ask professionals for assistance when you’re ready to purchase your first car.