A car is a very nice thing to have, but it’s not as easy to acquire. Even second-hand cars will take a huge chunk out of your budget. This is why car loans exist. They make car ownership more affordable and attainable. However, many people have a lot of misconceptions about car loans, especially first-time car purchasers.
Misconception 1: Low Monthly Payments Are the Best Option
Just because a car loan has low monthly payments doesn’t always mean it’s cheap. Generally, lower monthly payments mean longer payment terms. While they do make car ownership more affordable, longer payment terms mean debt accumulation due to higher interest rates.
This simply means that you’re paying way more than the principal amount over the loan’s duration. A shorter loan term with higher monthly payments will save you more money over time.
Misconception 2: The Only Factor to Consider Is the Interest Rate
It is true that interest rates are a primary consideration when taking out a car loan from a Ubi money lender or those in other parts of Singapore. However, other factors should also be considered, such as late and prepayment penalties, hidden charges, and other costs that come with the loan.
This is why you should always read the fine print and understand what you’re getting into before signing the agreement.
Misconception 3: You Can Only Buy New Cars With Car Loans
One common misconception most folks have about car loans is that you can only use them on brand new cars. Many banks and lending companies offer loan products that let you purchase both new and used vehicles. However, before you spend your loan money on a car, make sure you inspect the unit first.
Check under the hood to know its condition. Find out its mileage and how long it can last. You might end up spending a lot more on repairs and restoration than the seller’s asking price.
Misconception 4: A Car Loan Can Be Refinanced Anytime
Refinancing is an option many borrowers take to make debt management easier. While it may lower interest rates or monthly payments, keep in mind that refinancing comes with certain fees.
Assess the pros and cons first. Evaluate the potential savings versus the refinancing costs to see if you can comfortably afford it.
How Can You Make Wiser Purchasing Decisions?
As a first-time car buyer, you need to understand what you’re dealing with before making a decision. If you are serious about taking out a car loan, do the following first:
- Know the Total Cost of Car Ownership: Consider the purchase price, interest rates, insurance, and maintenance costs.
- Shop for the Best Deals on Loans: Don’t jump on the first loan you can find. Compare lenders and loan packages. Only pick the one that will not sacrifice your other financial obligations.
- Understand the Terms and Conditions: Read the fine print always. If you’re unsure about certain terms, ask the lender to explain them to you. Never go into something you do not fully understand.
- Keep in Mind Depreciation: A brand new car loses 10% of its value the moment you drive it off the lot and drops 20% in its first year. It will continue to depreciate over time. Ask yourself if the long-term loss is worth taking out a loan for.
Wrapping It Up
When buying a vehicle using a car loan, always do your research. Due diligence should always be observed to avoid buying mistakes and buyer’s remorse. Knowing and understanding car loans will help protect your finances and keep you from getting into unmanageable debt.
