How much should I borrow for my car?
When borrowing money for a new car most people have a hard time gauging how much they’ll need. These tips can help you decide how much you’ll need to borrow.
If you’re ready to buy a new car but don’t have the liquid funds for such a big purchase you can borrow money. Car loans are a great way to get behind the wheel of your own car quickly and easily.
Things to consider when choosing your car loan
When deciding on the type of car loan you’ll be taking out, there are a number of factors you should first consider.
- Savings and credit score. When deciding to go for a car loan, you should make sure that you’re able to repay the loan comfortably. Before approving your loan request, the lender you apply to will check your credit score and also look into your savings account history in order to determine that you’re capable of making the repayments.
- New or used car. New cars will obviously cost you more than a used car will but they’re also more reliable. No matter which you choose, make sure to check the valuation of the car through an authorised source like Singapore’s sgCarMart to make sure you’re not overpaying.
What factors determine how much can I borrow?
- The amount in your savings Lenders will want to look into your savings account to see how much money you have in order to make sure that you’re able to repay the car loan. Your available funds, along with your overall credit history, are few of the main factors that will determine how much a lender will loan you.
- Your annual income Your yearly income will also affect the size of the loan you can get. Like your savings account, this has to do with determining your ability to repay the loan. If your annual income doesn’t meet the lender’s minimum, they will most likely reject your loan request. Also, if they don’t feel that your income will allow you to repay a larger loan properly, they may only approve you for a smaller amount.
- Your dependents. Lenders will assess your other obligations, including your dependents to have a better idea of your expenditure. If you have a large family where you’re the sole breadwinner, they’ll also take that into consideration.
- Monthly living expenses. Things like utility bills, credit card bills, student loans, insurance premiums, or other monthly bills will also determine how much you can borrow. Your monthly expenses will be looked at in relation to your income so the lender can determine how your monthly income is allocated and how much you can spare for your car loan repayment. While there is no hard-and-fast rule, local lenders are usually more comfortable if your monthly car payments amount to 20 to 40 percent of your salary.
- Housing loans or rent payments. Like your monthly expenses, your housing loans or rent payments will be taken into consideration by a lender too. If they see you are already putting a large amount of your income on your housing loan repayments along with your other bills, they may determine that you don’t qualify for a large loan.
How to compare car loans
Car loans, like most loans, are a large responsibility that should be considered from every aspect before you actually commit to one. First, you’ll want to decide if a car loan is even the right option for you. Then the next best thing to do before settling on a car loan is to weigh the pros and cons of the available car loans and make comparisons so you’re sure that you’re getting the best deal available. Make sure you look at the interest rates on each loan, the repayment schedule, and fees attached to the loan, the credibility of the lender, and any other options you see.
- Interest rates.
Always look at the interest rate on the loan when you’re presented with the loan details. If one interest rate is lower than the other, that loan is probably the better option in terms of your bottom line.
- Loan terms.
Different loans may have different terms. One car loan may last for a year while another may have you carrying a debt for seven years. Compare the terms and pick the loan that is right for you.
- Known fees.
Most loans impose early repayment penalties if you decide to rid the car before the loan tenure is up. Make sure you compare all these fees to ensure that you’re getting the best deal on your loan.
- Repayment options.
There is usually a range of options available when it comes to repayment of a car loan. There might be specific payment plans available that will suit your needs better than others. Compare these repayment options and decide which loan has the best repayment options. An example would be balloon scheme financing.
Car loans are available from a number of different lenders and can come with different options and terms. Be sure to shop around and compare each loan in order to get the best deal.