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Auto Loans

If you are contemplating to buy a vehicle without investing your savings your best bet will be to go for an auto loans. To begin with, explore the options that are available for taking a loan. Going to your bank or any other financing agent or even a moneylender are the most common options.

Off late online auto loans have become very popular because such loans are hassle-free. Online auto loans offer comparatively lower rates of interests. There is no application fee and the approval is fast, generally within an hour. There are no hidden charges and no pre-payment penalties. Information on such loans can be gathered from websites such as:

Credit unions are an alternative auto-financing source. The credit unions offer loans in a much customer friendly manner. The loan amounts will be higher and the rate of interest less than what the dealers would offer. The eligibility is informed instantly. Loans can be availed without any down payment and other fees.

You can even fund your vehicle with home equity loans if you have equity in your home. The method of such funding can turnout to be beneficial in final analysis.

What are the factors do moneylenders consider?

Getting a loan approval from moneylenders needs some homework. The need is to have the positive indicators attached to all the basic parameters at which the moneylenders would look before actually giving the loan.

a) The credit score needs to be in the highest possible zone to become the prime borrower. The desired level can be checked prior to filing the loan application. It is necessary to ensure that the credit report presents your financial status in a true manner. A sound and clean financial position is a plus point to your worthiness.

b) Source of income is one such factor, which weighs the most when it comes to taking a loan. A stable and fixed source of income is what a moneylender would like to ensure before giving you the loan.

c) The monthly income should have enough buffers, to enable the borrower to pay back the loan and make the moneylender believe in the ability of the borrower to pay back the loan amount.

d) An excellent payment history would certainly increases the loan approval chances.

e) Your permanent address cements your case for the loan. Nomads are not preferred in the lending market.

How to avail the best deals in auto loans?

Everyone wants to buy a vehicle with the best available deal in the market. To begin with, a comparison of the rates offered by the various financing agencies needs to be done. Never go for auto loans without doing thorough research. Work out on the amount that you really require as your loan.

The most common scheme offered by the financers is the 100% finance scheme. In real terms, the offer is not as beneficial as it appears to be. Few advance EMI's or huge down payment would certainly be attached to such an offer. Don't fall prey to such schemes go through the entire loan details before taking a final decision.

Low interest rates are bait for the borrowers. Majority of the borrowers fall prey to the bait and go for loans that offer low interest rates. However, a better way of judging a loan is to calculate the effective rate of interest on the loan. It takes into account the entire cost involved in the loan such as the processing fees, method of calculating EMI, pre-payment penalties and other charges as applicable.

Flat rate of interest is usually a better option even if it is quoted lower than the variable rate of interest. This is so because the principal never gets reduced. A viable option would be to go for variable rate of interest with a daily reducing balance or monthly reducing balance system.

The add-on costs such as the processing fees and the pre-payment charges must be calculated before the loan is finalized. Processing fees is one factor that can be negotiated and should be kept in the rage of 1% to 2%. The higher is the loan amount the lower should be the processing fee. Pre-payment of the entire or some amount of the loan would help to reduce the loan burden.

The thumb rule to get best deals in auto loans is to bargain with the lender on issues like type of the loan and its duration, rate of interest and special discounts. A good bargain could result into a significant savings particularly if the loan is big.

Try and get hold of one such financer who offers deposit scheme loans and in return would reduce both the rate of interest and the Equated Monthly Installments. In such a scheme, a financer would take a deposit from you and give you a loan equivalent to the deposit. The financer would certainly charge a higher rate of interest from you than the rate of interest, which he would pay you on the deposit. For e.g. the interest rate the financer pays you on the deposit is 8% and charges 14% for the loan, you would actually end up paying 6% interest.

How to keep the EMI small on auto loans?

In simple terms EMI stands for Equated Monthly Installment. A loan is paid back through equated monthly installments. Repayment of a loan is done in the form of equated monthly installments. An interesting fact about EMI is that it is an unequal combination of principal and interest but still it remains constant throughout the term of the loan. Paying a low EMI is the prime objective of every borrower. Here, I am making an attempt to help you reduce your EMI by being aware of the different factors on which EMI is dependent.

EMI depends on rate of interest, total amount of the loan and the tenure of the loan. An equated balance between these three factors is essential to have a reduced EMI. Higher is the loan amount, the higher will be the EMI, but opting for long-term loans can reduce it. Higher rates of interest will push the EMI to the higher end and vise-versa. EMI can vary greatly on the tenure of the loan.

A perplexing situation is when one finds that the EMI is different in two different cases despite the fact that the loan amount, rate of interest and the duration for both the loans is same in both the cases. Here the difference lies in how the EMI has been calculated. EMI calculated on the flat rate option will be higher than the EMI calculated on the reducing balance system. The thumb rule here is that the EMI is the lowest when calculated on a daily reducing basis.

Some other ways of reducing the EMI are:

(i) Opting for the deposit scheme loans where the lender tends to reduce the rate of interest and the EMI.

(ii) Pre-payment of some amount of the loan will also help in reducing the EMI.

(iii) Debt swapping also helps you to lower your EMI. Taking a new loan at a lower rate of interest will result in a low EMI.

(iv) Opting for heavy initial down payment will help reducing the EMI.

(v) Go for such moneylenders who offer decent discounts on the loans, as this would lower your EMI

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