Many of us consider buying a car loan when considering buying a new or used car. It is an ideal solution for those who do not have enough funds to independently finalize the transaction, and want to buy their dream four wheels. What does it take to get a car loan? About this in today’s article.
The basis for approval of the loan is the assessment of credit history and repayment capability. Credit history is based on data collected by credit bureaus. This information applies to our personal data, payment of bills, repayment of loans taken, possible lawsuits or employment. It is on their basis that we get an assessment of creditworthiness, i.e. credit score. Due to the fact that the offices have different evaluation systems, the assessments are not always identical. In practice, financial institutions divide clients into several groups. People with the best credit history (above 750 points) can get a loan for as low as possible. Such a person usually has to have credit cards, own home and a well-paid, permanent job. People with worse credit history (around 650-700 points), but with a steady job with documented income, will receive a loan, but they will usually have to pay a minimum of 10%. the value of the car. In the case of such people, the interest rate will be higher by 0.5-1 percent. in comparison with persons qualifying for the first group. In a more difficult situation are those who have never received any loans and can not document their income. In such cases, the bank often requests the signature of a guarantor, i.e. a person with a more stable credit history. A higher first payment, sometimes up to 25%, is also required. the value of the car, and the interest rate is usually higher by 2-3 percent. People with a bad credit history (below 600 points) often can not count on a low-interest loan. Ordinary banks in this situation do not give credit and the only option is to use the loan offered by the showroom or by credit companies specializing in such loans, usually at a very high percentage. Usually, the seller assumes responsibility for arranging the loan. If we buy a new car, this form is usually sufficient.
What should you remember when deciding on a loan? Above all, it’s about repaying it on time. In general, loans have a period of unpunished delay, usually 10 days. After this period, fines are added, and if the delay is more than one month, it is reported to institutions that assess our credit, which affects the assessment of our ability to incur liabilities in the future. Remember that if we do not pay the car for about three months, one day it can be taken by the bank without notice. Recovering such a car is very expensive, and sometimes even impossible. Most states have exact regulations that regulate such situations. Therefore, if we can not cope with the timely repayment of installments, it is better to ask the bank with a request to postpone the repayment date. If we can convincingly explain our financial problems and show good will in the will to overcome them, the bank will most often take into account our request.
Remember that when deciding on a car loan, we also agree to the repayment security set by the bank. They concern, among others required insurance. The first and basic principle applicable when purchasing a car for a loan is the fact that the bank will require full insurance from us. Without it – in a situation where, for example, a car is stolen – we would be left without a car, and the bank would still expect us to repay our liabilities.
Picture Credit: mohamed_hassan