Buying a car with a Car Loan has become quite easy and convenient today. The seamless application process, quick disbursal and competitive interest rates have made Car Loans accessible to many. Yet, there are several myths around Car Loans, creating confusion. It becomes important to debunk the myths and reveal the hidden truth.
1. Longer loan tenures are better
One myth is that opting for a longer loan tenure is advantageous as it results in lower monthly instalments. However, this is not entirely true. While longer tenures may reduce your immediate financial burden, they can increase the overall interest you pay over the loan's lifetime.
2. A higher down payment isn't necessary
You might believe that a higher down payment is unnecessary and that you can finance the entire car's cost through a loan.
However, lenders typically favour borrowers who can make a substantial down payment, as it demonstrates financial responsibility and reduces the lender's risk. A higher down payment can lead to lower interest rates, shorter loan tenures and lower overall costs.
3. Pre-approved loans are the best
This is a common myth. While pre-approved loans from dealerships or financial institutions may seem convenient, they might not always be the most cost-effective option. It's crucial to shop around and compare interest rates, fees and loan terms from multiple lenders to ensure you get the best deal possible.
4. Credit score doesn't matter
Credit scores are a key tool for lenders in determining the risk of lending and assessing your overall creditworthiness. Lower interest rates and more favourable loan terms are common outcomes of a better credit score.
5. Negotiating interest rates is impossible
You might assume that interest rates on Car Loans are fixed and non-negotiable. However, this is not the case. Like any other financial product, interest rates on Car Loans can be negotiated, especially if you have a strong credit profile and have shopped around for multiple quotes.
For example, Axis Bank's interest rates for a New Car Loan begin at 9.3% p.a., along with other incentives such as loan amounts starting from ₹1 lakh, up to 100% on-road funding, and a maximum tenure of up to 7 years.
6. Better to pay cash than to finance
Paying with cash could appear like a better alternative since you would be saving on interest payments. However, from a financial standpoint, that wouldn't be the best choice. Your bank account might suddenly become short on funds that could have been put towards other investments or utilised in case of an emergency. Additionally, timely debt repayments help improve your credit score in the long run.
Also Read: Demystifying the different types of Car Loans
Conclusion
When it comes to new or pre-owned Car Loans, it's important to familiarise yourself with the common loan myths and the reality. By debunking these common car financing myths, you can approach the car-buying process with a clear understanding and make informed decisions.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.