Choose a Car Loan Wisely

After a house, the purchase of a car would, for most people, be deemed as the second most expensive personal investment. With that in mind, it cannot be overemphasised that it is important to choose a car loan wisely. How then do you find the best rate for a car loan? The key to this is diligence.

Firstly, consider your monthly income and your current liabilities – eg. loans, rentals, transportation costs, food, entertainment, insurance, etc. Make a conscious effort to put aside a sum of money each month towards savings or investments. Then, look at how much you have left to finance a car loan. That would give you an indicator of the type of car you can afford to purchase.

Apart from the usual monthly car loan repayments, you must also factor in other payables such as motor insurance, petrol or diesel, taxes and maintenance costs. You would not want to stretch your finances too thin every month resulting in your inability to save money consistently.

Once you are clear on your estimated funds availability to service your car loan, it is time to go hunting for a car loan. Finance companies and banks usually impose a higher interest rate for car loans for used cars compared to new cars. This is usually due to the risk and potential resale value. An unsecured car loan would also attract a higher interest rate compared to secured car loans.

The cost of borrowing would be lesser for a shorter loan tenure. Ask yourself if it is necessary for you to stretch your car loan repayment for up to 7 years or if it would be possible for you to manage payments within 3 or 5 years. You would be surprised at the potential savings on interest rates by having a shorter tenure.

Finally, compare the rates offered by the various finance companies based on similar terms. By using like for like comparison eg, secured car loan at 5 years for a new car, you would be able to obtain the interest rates quotation from the various finance companies for you to make a decision on.

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