Purchasing a car can be a significant investment, and for many, it often requires taking out a loan. Car loans are an excellent way to make your dream car a reality without having to pay the full amount upfront. But what if you could finance up to 90% of your car’s value with a loan? This might sound like an ideal opportunity for car buyers looking for convenient and flexible financing options.
In this blog, we will explore how car auto financing works, why securing a 90% loan is beneficial, and what you need to know to make the most of such offers.
What Is Car Auto Financing?
Car auto financing refers to the process of obtaining a loan to purchase a vehicle, whether new or used. You borrow money from a lender—like a bank, credit union, or financial institution—to buy the car, and then you repay that loan over time with interest.
Many financial institutions offer car loans that cover a significant portion of the vehicle’s value, allowing buyers to purchase cars without paying the full price out of pocket. The buyer typically pays a down payment (usually between 10% and 30% of the car’s cost), while the loan covers the remaining amount.
Understanding the 90% Loan Offer
A 90% car loan offer means that the lender will finance up to 90% of the car’s value, and you are responsible for the remaining 10% as a down payment. This type of loan is attractive for buyers who may not have enough upfront cash to make a larger down payment.
For example, if the price of the car is PKR 3,000,000, with a 90% loan offer, the lender would cover PKR 2,700,000, leaving you to pay only PKR 300,000 upfront. The rest is repaid through monthly installments over a predetermined period (typically 3 to 7 years), along with applicable interest.
Why Opt for a 90% Car Loan?
Here are a few key reasons why opting for a 90% car loan can be beneficial:
1. Lower Initial Outlay
By covering 90% of the car’s cost, you’re only required to pay a small portion upfront. This is ideal for buyers who have limited cash on hand but still need to purchase a vehicle. A lower down payment allows you to free up your cash reserves for other expenses or investments.
2. Affordable Monthly Payments
With a loan covering the majority of the car’s value, you can spread the repayment over an extended period, making your monthly installments manageable. Many lenders offer flexible repayment terms that can be tailored to suit your budget and financial goals.
3. Improved Cash Flow
Since you’re not using a large sum of money for the down payment, you can maintain liquidity. This ensures that your cash flow remains healthy for other financial responsibilities or emergencies.
4. Access to Better Cars
A 90% loan enables you to purchase a higher-value car than you might have been able to afford with a smaller loan or higher down payment. You can choose a car with better features, reliability, and longevity without stretching your finances too thin.
How to Qualify for a 90% Car Loan
While a 90% loan offer is appealing, there are certain factors to consider to qualify for it. Lenders assess a borrower’s creditworthiness and ability to repay before offering favorable loan terms. Here’s what you’ll need to keep in mind:
1. Good Credit Score
Your credit score plays a vital role in securing loan approval. A high credit score demonstrates that you are a reliable borrower and can make timely repayments, making lenders more likely to offer you a high loan-to-value (LTV) ratio.
2. Steady Income and Employment
Lenders need assurance that you have the financial capacity to repay the loan. Having a stable income source, whether through employment or business, improves your chances of qualifying for a 90% loan. Many lenders may ask for proof of income and employment history to assess your financial stability.
3. Vehicle Eligibility
Not all cars are eligible for a 90% loan. Lenders often have specific guidelines about the types of vehicles they are willing to finance, which could include restrictions on the car’s age, model, or value. Generally, newer vehicles are more likely to be approved for high loan amounts.
4. Down Payment
Even with a 90% loan, you will need to make a 10% down payment. Ensure that you have enough savings or financial backing to cover this portion when applying for the loan.
Things to Consider Before Taking a 90% Car Loan
While a 90% car loan offers significant benefits, there are some important factors to consider:
1. Interest Rates
Loans with a high loan-to-value ratio often come with higher interest rates. This means that while your upfront costs may be lower, you could end up paying more over the life of the loan due to interest accumulation.
2. Loan Term
The loan term—how long you take to repay—will impact your monthly installments and the overall cost of the loan. A longer term reduces monthly payments but increases the total interest paid over time.
3. Insurance Requirements
Some lenders may require you to have comprehensive car insurance for the duration of the loan to protect their investment. Ensure you factor in insurance costs when budgeting for your car purchase.
Final Thoughts
A 90% car loan is an excellent option for individuals looking to minimize their upfront costs and enjoy flexible financing options. However, it’s essential to evaluate your financial situation, the interest rates offered, and the terms and conditions before making a decision.
At Kreston Hyder Bhimji & Co., we help our clients navigate through such financial decisions with ease. Whether you’re considering a car loan, need expert tax advice, or are exploring other financial services, we are here to provide customized solutions to meet your needs.
Feel free to reach out to us for financial guidance and support!