How Car Loans Work & Car Loan Types!
How Car Loans Work & Car Loan Types!
One of the most utilised financial products in India, availing car loans has increased leaps and bounds, especially in the past decade. What initially began as a process of second-hand car finance has now evolved into becoming one of the easiest ways to buy a new car.
Car companies and loan providers have started collaborating with each other to roll out customizable car offers for people looking to buy new cars or trying to find second hand car finance. With the surge in the number of cars available in the market, whether they’re budget-friendly or luxury, people have a wide variety of cars to choose from. Owning to the low rates of interest on car loans, it has now become easier than ever to purchase a vehicle.
So let’s find out more about how car loans work in India and the most commonly found car loan types.
Car loan types are different ways people can get money to buy a car. You can borrow money to buy a car or change how you pay for your car later. Options for car loan that let you choose which car loan you want.
Car Loan for New Cars
This form of loan is usually the easiest to get approved. If you plan to purchase a new car, the bank or loan lender might pay you up to 85% of your car cost. The amount is disbursed directly to the car seller. However, what one should ensure is that all EMIs for a loan is paid on time. This is important as your car is a security against the loan. If you don’t pay timely, your car can be seized by the moneylender.
Car Loan for Used Car
A car previously pre-owned by people for a certain time period is a used car. Sometimes, people try to acquire second hand car finance from lenders. Banks and financial agencies offer loans on such cars only for those that are not older than 3 years. Why is second hand car finance trickier? That is because the value of a car depreciates every passing year and the car loses value. For such a car purchase, second hand car finance can range from 50-80%.
While second hand car finance interest rates vary from bank to bank, a general amount comes to 8-11% p.a. The interest amount can also depend upon a person’s income levels, loan amount, repayment tenure, etc. There are many lenders and banks offering car loans, so you should weigh all your options before deciding the lender you want to take the loan from. Sometimes, the car company you’re using to make the purchase can also get you in touch with different lenders who can offer you competitive rates.
A car is one of the biggest investments, requiring critical thinking and basic car checks. Getting a loan may vary based on the chosen banks, but if you are looking for online car loans, here is a step-by-step guide on getting a car loan in India.
Choose a lender: Many banks in India offer car loans, but you should always choose the one, which is reliable, reputed, and known for its effective customer service. Also, remember to compare the interest rates, loan tenure, loan amount, etc., to make an informed decision.
Check the eligibility criteria: To get a car loan, you must meet the required eligibility criteria of the loan lender. Some of the crucial factors that matter are your age, monthly income, employment, work experience, etc. To ease this process, many lenders provide online eligibility calculators. So, use these tools to know whether you meet the eligibility criteria or not to meet the loan needs.
Choose your desired loan amount and select the repayment period: The next step is to calculate the loan amount and how much time it will take for you to repay the loan. Based on the requirement, you can select the amount and use the EMI calculator to know the exact monthly instalments of the loan.
Provide the required documents: To get the approval, you have to submit the required documents. You can do it online or by visiting the nearest bank branch of the lender. The document submission can vary based on the bank you choose. However, some of the vital documents that will mostly be required are ID proof, income proof, address proof, and more. After submitting the documents successfully, the lender will begin the approval process.
Choose your dream car: If you meet the eligibility criteria and your documents are submitted successfully, the lender will approve your Car Loan application.
There are various factors contributing to the success of quick approval of car loans in India. Hence, it is important to consider the crucial factors, some of which are as follows:
Understand your credit score status: The credit score plays one of the essential roles during the loan application process. A bad credit score increases the chances of rejection of the loan. Hence, it is always a wise decision to check your credit score before applying for a loan.
Tenure: The tenure you choose affects your car loan interest rate. Usually, the longer tenure has a higher interest rate. So, make sure you choose a shorter tenure to get an affordable and favourable repayment schedule.
Interest type: There are two different kinds of interest rates for a car loan. One is floating, whereas the other is fixed or flat. Their prices differ and they provide different advantages. Therefore, it is a good idea to start doing comprehensive research and choose which rate best suits your needs in terms of both convenience and money. Also, look into possible lenders and differ their interest rates to choose the most economical one.
Explore prepayment deals: The applicant can pay off the vehicle loan early without having to complete the whole term through prepayment. In the end, this also protects you from excessive interest rates. To avoid paying greater foreclosure penalties, it is essential to select a lender carefully. Inquire in advance with your lender about potential prepayment discounts and associated penalties. You may pay off your car loan on schedule and with considerably more flexibility if you choose a penalty-free plan.
Go through car loan charges: It is crucial to go through the loan charges, which can also include other costs like Stamp Duty, Processing Fee, Registration Certificate (RC), Collection Fee, Prepayment Fee, and Late Payment Fee. So, go through the loan charges and remember to check out the CIBIL report on the internet.