Everyone, regardless of social status, has a dream car, but not everyone can afford to buy it. As a result, budgeting and planning are critical when purchasing your first car. This would necessitate thorough research, including price comparisons and vehicle vendors, in order to select the best option.
A car is a necessity for many people; however, owning a car with a loan will stretch your budget and bind you to pay back a certain amount of money every month until full repayment.
Obtaining a car loan is one popular method of financing your vehicle. A car loan is a sum of money borrowed from a bank or another institution for a set period of time in order to purchase a car.
This article is not about whether you should save for a car or borrow to fund your car purchase; rather, it is about how you can buy your first car by borrowing.
Pros of car loan
• Immediate access to your car: Instead of waiting years to get your car, a loan allows you to get your car and start driving it right away. You can always buy a car now, ride it now, and think about the payment plan later when getting a car loan.
• Ability to build your credit profile. You can use this to build your credit profile if you are able to pay back within the specified time frame without defaulting.
Cons of car loans
• Interest and fees: You will be expected to pay interest on almost any type of loan. This means you’ll pay more than the retail price, but you’ll get the benefit of spreading the cost of the car over time. The actual interest rate you receive will be determined by the lender as well as your personal credit history. So, in order to get the best interest rates, you should try to improve your credit score before signing the loan agreement.
• Risk of default: When there is a default in payment, the interest fee is added, too, and this automatically increases the total amount to be paid back.
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Steps on How to Get a Car Loan
1. Have an idea of your kind of car:
Before approaching a car loan company or business, you must know the type of car you want to buy. This will help you estimate how much you need to borrow.
2. Have a stable source of income:
Whether you are an employee or an entrepreneur, you must be able to repay the loan on the scheduled repayment date, which is usually monthly. Make certain that your monthly loan repayment does not exceed 10% of your monthly income. Remember that there are other requirements to be met.
3. Maintain a good financial history:
The bank or the auto-financing company would ask you to present your bank statement in order to judge your financial history. Some would ask for six months to one year.
4. Your organization is an important factor:
The type of company you work for has a large impact on whether or not you will be approved for a loan. If you work for a well-known company or a multinational corporation, you have a better chance of getting a car loan in Nigeria.
5. Equity contribution:
Most banks or auto-financing companies will require you to contribute a percentage of the total amount needed to purchase a car, which could range from 20% to 40%. Before receiving funds from the institution, a proforma invoice must be obtained from the car dealer. A proforma invoice is a draft invoice that indicates your interest in the vehicle and its price.
6. Payment of car insurance:
You would also need to pay car insurance, which is typically 5% of the car’s value. You would need to learn about the insurance policies offered by the auto financing company you intend to use. Some would advise you to use affiliate insurance companies or their own if they have one.
The funds are transferred to your account once all necessary steps and documentation have been completed. The financial institution keeps a spare car key in order to reclaim it.
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Originally posted on October 12, 2022 @ 10:24 am