While banks offer competitive options for car loans, you don’t need to accept the first offer that you come across. A little negotiation can go a long way in lowering your EMIs and overall costs. Before you lock in a deal, read this blog for five tips on how to get the best deal for your bank car loan.
Step 1: Decide your budget before negotiating
A car loan is a major and long-term commitment. Before you go to a bank, understand your budget to know how much you can afford without straining your finances. Going for a higher loan can be tempting because of the higher chances of getting accepted. But remember that a bigger loan also means higher EMIs and more interest over time.
How to set a realistic budget?
- Calculate your down payment
A bigger down payment equals borrowing less, which can help you secure a lower rate. A good rule of thumb is to aim for 20-30% of the car’s value as a down payment.
- EMI affordability
Your EMI shouldn’t eat up your monthly expenses. When deciding on a budget, you should consider multiple factors, such as fuel, maintenance, insurance, and other expenses.
- Car loan EMI calculator
Many banks offer a car loan EMI calculator online. This can help you explore and understand how different loan amounts and tenures have an impact on your EMI.
So, before you apply for a bank car loan, have a clear budget in mind. This will give you an upper hand when negotiating.
Step 2: Know your loan eligibility and financial standing
Banks don’t approve loans for everyone. They consider your creditworthiness first. Knowing where you stand will give you a better opportunity to negotiate.
What do banks look at before approving a loan?
- Credit score
Check your credit reports before applying for a car loan. A credit score above 750 gives you a strong position to ask for lower interest rates. However, if you have a poor credit score, then the bank may quote you higher interest rates. To improve your credit score and get better rates, pay off any small debts and your EMIs on time.
- Stability of income
Salaried professionals and self-employed individuals are evaluated by different criteria. If you have a steady and consistent income, you are in a better place to deal.
- Existing loans and debts
If you have too many ongoing loans, then your chances of getting a lower interest rate are reduced.
Step 3: Compare loan options and use them for your benefit
You don’t have to accept the first loan offer that comes your way. Banks have various loan policies and doing a little research will help save you money.
What to compare?
- Interest Rate: Compare Fixed vs. floating rates.
- Loan Tenure: A longer tenure gives you smaller EMIs but with a higher interest rate.
- Processing Fees: This can depend on the bank, but generally it is 2% of the loan amount plus taxes.
A negotiating tip is to get quotes from 3 to 4 banks and use a lower offer to negotiate a better deal elsewhere.
Step 4: Understand the full cost of borrowing
A lower interest rate doesn’t mean a cheaper loan. Banks also have hidden charges that can add up to your costs.
Common hidden charges:
- Processing fees: This can go up to 2.5% of the loan amount.
- Late payment penalty: This can vary for different banks but could exceed up to 3% per month on the overdue amount.
- Prepayment charges: Some banks charge 2-5% of the outstanding principal amount.
Hence, it is important to read the fine print before signing the car loan. Hidden fees can have a major influence on the overall cost.
Step 5: Pick the right loan tenure and EMI structure
A longer tenure reduces your EMI while increasing the total interest paid. A shorter tenure saves interest while increasing EMI.
Which one should you choose?
- Short tenure: A shorter loan tenure is between 3 to 5 years. In this case, your interest rate will be lower, although your monthly EMI will be higher.
- Long tenure: A long loan tenure is about 6 to 7 years. Your interest rate will be higher here, but your EMI will be lower.
A quick tip is that if your income is stable, then you should opt for a shorter tenure to save on interest rates. Make sure to discuss your EMI flexibility and possibilities with the bank before finalising the loan. A well-negotiated bank car loan makes buying your dream vehicle easier and more affordable. Make sure to do your research, comparing lenders and their strategies and don’t hesitate to negotiate.