WARREN BUFFET

The rich invest in time, the poor invest in money.

With three- year third party insurance becoming mandatory since September 1, 2018, the cost of buying a car just got a little higher. The right car loan can help you cover all associated costs with ease, while still being light on your pocket. However, to make the most of your borrowing experience, apply for a car loan the right way. You can do this easily even if you are borrowing for the first time. All you need to do is be wellinformed about the basics. Here they are.

THINK LIKE A LENDER, CHECK YOUR CREDIT SCORE

In order to analyse the risk involved in lending you money to buy a car, lenders analyse your past behaviour with credit.

The easiest way to do this is via your credit score. This threedigit score helps lenders to measure your creditworthiness as it is based on your credit history and management in the most recent years. But you can check your credit score yourself. This will help you understand your prospective lender's perspective on your car loan application. You can also look at your credit report to spot any discrepancies and raise disputes to resolve them. Further, you can work on increasing your credit score if it is on the lower side to get better interest rates and loan offerings. The relationship between the two is simple: the higher your score, the more affordable your loan will be.

GO ONLINE TO SEE VARIOUS LOAN OFFERS

The more loan offerings you view, the more informed you will be and the more likely you are to find one best suited for your needs. While the maximum tenor for a car loan remains seven years, look at other aspects of borrowing and choose your preferred lender. This way, you need not harm your credit score with multiple loan applications as you can narrow down on the right lender first. Look beyond interest rates and find out about all charges involved. One leading bank, for example, offers finance up to 100 per cent for the purchase of a car for their existing savings account customers while other lenders finance up to 90 per cent. Some lenders do not offer money for the purchase of insurance and accessories. So, check the loan deal you are considering thoroughly before applying.

While your current bank’s loan offering may have only slightly lower interest rate than another lender, don’t choose your bank only for the sake of convenience. Even a small difference in interest can make a big impact on your long- term interest payment. Use an EMI calculator to compare EMIs based on different rates of interest and see the overall interest you are likely to pay. Then choose the most affordable lender. Another thing to watch for is fixed and floating interest. A fixed rate is slightly higher than a floating rate but ensures your EMI and tenor is fixed. A floating rate changes according to fluctuations and economic policy, but may be cheaper and comes with no penalty on prepayment. So, consider these nuances and choose the right rate for your car loan.

CALCULATE THE OVERALL COST OF BORROWING

The affordability of your loan is not just limited to the interest rate it comes with. While missing an EMI date may seem unlikely, stay a step ahead and consider the possibility by taking late charges into consideration. While you are at it, look at other charges like that of prepayment and foreclosure along with the processing fees and statement charges. Choose a lender that is transparent about all charges involved to avoid being unpleasantly surprised later. Now, taking all these charges into consideration, pre- plan your repayment to ensure it is easy and hassle- free.

CONSIDER YOUR EXISTING DEBTS BEFORE APPLYING

Consider your other financial obligations before you apply for a car loan. A lot of existing debt constraints your income and impacts your ability to repay. A high debt- to- income ratio also impacts your credit

While many lenders allow you to see the loan amount you are eligible for when you use the eligibility calculator on their website, take a look at your pre- approved offers. With a preapproved offer you can view a customised car loan offering based on your previous credit history with the lender or your current income records. You can be sure of a faster application and swifter processing of your loan when you avail a pre- approved offer. Plus, with this offer, there is seldom any chance of rejection.

Follow the checklist above to get behind the wheel of your dream car while managing your finances like a pro. Just remember to make timely payments of your car loan and remember to collect the necessary documents to remove the hypothecation to your lender once you've paid it off in full. — The writer is CEO, BankBazaar. com