An automobile loan, is a kind of loan you take to purchase a new or used vehicle. The collateral for auto loans is the acquired vehicle, which is a crucial point to remember when you need a Car Loan.
Can you imagine taking out a loan to purchase a car, but the lender keeps the automobile until you pay back the loan. Simply because, if you don’t pay off all of your debt within the allotted time, the lenders can take your automobile.
Another option is to go for car loan that comes without collateral, which means you do not need your vehicle or any other asset as security. A collateral-free auto loan has benefits, but a drawback to this type of loan is that the interest rate is often higher.
The lenders make money from lending you money for the automobile via the interest you agree to pay.
Why Get An Automobile Loan
If you need a vehicle and have a reliable source of income, you may be eligible for a car loan.
You should be able to make monthly payments throughout the duration of the loan with this source of income.
You may get a vehicle loan even if you currently have a car but wish to upgrade. The best loans to use to purchase a new automobile are automotive loans.
Until you are able to repay the lenders with the agreed-upon interest, auto loans utilize the vehicle you are purchasing as collateral.
When compared to other loan types, the interest rate is cheaper when you have a vehicle as collateral.
What to Have in Mind Before Selecting an Automobile Loan?
- When it comes to interest rates, car loans, also known as automobile loans, vehicle loans, or auto-loans, may be challenging to comprehend.
- If you are unfamiliar with the phrases used in the market, you risk selecting a bad vehicle loan.
- Car loan interest rates vary depending on a number of variables.
Prior to making an application for a vehicle loan, it is important to be aware of the following:
The Required Upfront payment
An upfront or down payment is often a sum of money that you must come up with on your own to purchase an automobile. When an automobile is pledged as security for a loan, the lender typically only lends a part of the entire amount.
The more money you put down, the less money you need to borrow and the lower the interest rate you will have to pay.
In certain cases, you may trade in an old car together with the down payment to reduce the amount of the loan needed.
Annual Percentage Rate (APR)
One of the most crucial elements to take into account is the annual percentage rate, since it is crucial to know how much interest you will have to pay over the course of the loan.
Monthly Loan Payments
The majority of auto lenders advise making smaller monthly payments, which lengthens the loan duration. In the long term, doing it in this manner results in higher interest payments. Generally speaking, it is cheaper to repay the loan quickly.
As an example, consider a loan for a $2,000,000 automobile with a 2-year term and a 2.00 percent APR. You will pay around 120,000 Naira in interest on the loan over a 24-month period.
The monthly payment will be lower if you choose to repay the same loan over a five-year period with the same APR, but the total amount of interest you’ll pay will be higher at the conclusion of the process—roughly 60,000 for the same loan amount.
Understanding these elements is essential for a successful vehicle loan.
Interest Rates On A Car Loan On Average
In Nigeria, banks charge interest on automobile loans ranging from 17% to 30% annually. Due to the existing condition of affairs in Nigeria, a number of variables that contribute to these high interest rates are unavoidable.
If you’re not cautious, you might find yourself paying interest that is more than the car’s initial purchase price.
There are several compelling reasons to apply for a car loan in Nigeria. If you’ve never bought a vehicle before, whether it’s your first or you’re replacing an old one, it might be a frightening notion.
You can ace your loan interview with the help of our comprehensive guide on applying for a car loan in Nigeria.
Applying for a car loan may be complex and unpleasant. The right guidance can make all the difference in your approval and getting a good deal. Here’s a step-by-step guide to getting a vehicle loan in Nigeria.
Procedures Involved in Applying for a Car Loan Application in Nigeria
First you have to determine your financial capacity. Finding out how much you can afford is the first step in the vehicle loan application process. This entails taking a close look at your finances and figuring out how much you can comfortably spend on an automobile.
Determine the type of vehicle you want to buy.
If you decide to pick a brand-new or fairly used car, not to worry, as banks are always available to help you with the finances.
It’s important to know what you want before approaching a bank or car loan company. You’ll have a guide if you change your mind later.
Determine the car’s cost.
You need to know the price of your dream car and when it will arrive once you pay. That is pretty much easy. All you need to do is to visit a dealer shop and select the car you desire. You will also receive a draft invoice.
You should also be informed that banks don’t fund the whole purchase of the car. They only finance 60% of the money, and the rest of the payment is left to you to add up.
If you choose the car you want and the cost of it is N4,000,000. The bank would only give you 60% of that cost, which is N2,400,000.
The remaining NT 1,600,000 will be funded by you. You would be advised to have a car insurance policy, which is usually 5% of the initial value of the car. From our illustration, the amount would be N 200,000.
Car Loan Application in Nigeria
You need to ask your dealer if he/she already has any arrangement with the bank you are obtaining a loan from. This is necessary because most banks do have agreements with some reputable car dealers to aid in the loan process.
You need to understand your bank’s product services.
Financial institutions like banks do have a variety of products which specify their terms and conditions for applying for a car loan. It is also advised that you use a bank that offers product services in relation to car loans.
Such a thing would make the process easier and faster. If your traditional bank doesn’t offer car loan services, you can either choose to continue the procedure with them or try applying at another bank. Nonetheless, it is expected that all banks will have such products available.
Meet with the bank’s customer service.
If you have found out that your bank offers such products and services, you need to meet your account officer to apply for a car loan.
If you insist that you want to try out another bank, you need to first make inquiries by reaching out to their customer service. But if you want to proceed with such a bank, you need to have an account with their bank.
Formal Application Tender
You will be asked to write a formal application for a car loan after settling with your bank.
A copy of your salary receipts, the original invoice for the car, and your employment letter would be attached to your application letter. Your account officer will require all of these details in order to process your loan.
The application procedure
After you have submitted your application letter to your finance officer, you then need to wait for your application to be processed.
The account officer of such a bank would give you some forms to fill in. In the forms, you would be asked to correctly fill in your basic details like residential address, salary details, etc.
You will receive an offer letter.
When your application has been processed and approved, the bank will present you with an offer letter. The offer letter is a document from the bank which states the exact amount of money being loaned to you.
It would also contain the bank’s interest rates, repayment pattern, security fees, etc. The bank would also demand a standing order from you.
A standing order simply means you give your bank permission to deduct some amount of money from your earnings every month.
To confirm such, you need to go through your bank statement by the end of every month to confirm the exact amount that was removed from your account. If the repayment amount is more than 10% as agreed upon, you need to call or visit your account officer to clarify the issue.
Payment of Funds
When you accept the bank’s offer and you are able to fulfill all the requirements needed, the borrowed funds will be paid to your account.
Basically, the bank would only pay you the money when they have issued a bank draft for the car dealer in respect to the payment of the car.
After the bank has issued a bank draft to the car dealer, you are free to pick up your car. You need to understand that the ownership of the car would be between you and the bank.
On all the car documents, it is your name and the bank’s name that would appear on them.
Notably, banks do not require collateral before granting such loans. The security of such loans is based on the fact that, with the insurance cover, you also pay for the car.
If it then happens that you fail to make payments for the car, they have the legal right to take the car away from you and sell it off in order to recover their loss.
Here are a few last things to think about before you apply:
Ensure you have the required documentation. The lender will need you to provide them with certain paperwork when you apply for a vehicle loan. These might include things like bank statements, residence documentation, and evidence of income.
Examine the conditions and interest rates offered by several lenders. Lenders vary greatly from one another. Some could provide better terms or interest rates than others. It’s crucial to weigh your alternatives before choosing a lender.
Finally, the procedures highlighted above may not follow due process. There may also be some alterations in the subsequent processing of a loan. This article is to help in understanding the processes involved in a car application process.