Are you planning to move into your own house or buy a new car? The next step for you will be to look for best loan option as per your requirements. Before you apply for a home or car loan, there are a few points that you should keep in view.
Car Loan
Speed thrills but kills – this message is not applicable only when you are driving on the road. There are many who are so excited to drive home their new car that they tend to overlook important aspects of finalizing new car or a car loan.
The key to avail best loan offer is that you go on an overdrive to look for all the options available and then make the right choice.
You should fully understand the terms and conditions of auto loan and only then sign on the dotted lines. Here are a few ‘potholes’ that you should avoid before taking a final call:
Interest rate: It is always better to take a car loan on floating rate so that you may get the benefit if interest rate comes down. The fixed rate may be slightly lower than floating but as it remains fixed even if the interest rates go down, you may end up paying higher interest.
Down payment: There are banks which offer up to 85 per cent of the on-road cost of vehicles. Others offer 100 per cent of ex-showroom cost and even 100 per cent of on-road cost of the car if you are a preferred customer. But there is a catch. The more you depend on loan, the more you end up paying as interest. You should try to make maximum down payment to reduce your loan amount.
Cibil score: To avoid any hurdles in availing a loan, you must clear all your pending debts. You should review your credit report before applying for a loan.
Loan prepayment: Seek clarification from your lender about foreclosure charges, if any. This will save you from future shocks in case you decide to prepay your loan.
Tenure and EMI: It is advisable to keep your loan tenure short so that your total interest outgo is not too high. As your EMI depends on loan amount, maximum down payment will keep your loan amount low.
Home Loan
You can avail home loan for the purchase of a new house, buying land and construction on it and even to renovate your existing house.
Generally banks give loans equal to 75-80 per cent of the value of the property. The biggest challenge for a borrower, however, is to get the best repayment terms. To get the best deal, a prospective borrower should weigh all available options.
Loan eligibility: Lenders evaluate a borrower’s loan eligibility on the basis of employment status, income and credit history. Of these, credit history is important as banks look into past defaults, if any.
Type of interest: Home loans are available at fixed and floating rates of interest. If you choose fixed rate of interest, EMIs will not vary throughout the tenure. It is beneficial only when interest rates are rising.
In floating rate, EMIs vary as per the fluctuations in interest rate.
Loan tenure: If your tenure is long, the EMI will be low but total interest outgo will be high. Before you take a decision on loan tenure, assess your finances so that EMIs do not overburden you.
Read the fine print: Do not let documents related to home loan overwhelm you. Take your time to understand the terms and conditions, various charges, fees and other such details to avoid unpleasant surprises in future.
