Having a car used to be considered a luxury item. However, in today’s economically developing world, having a car is both necessary and convenient for getting from one end of the ever-expanding city. So we have Car Loan!
Though not everyone has enough cash to buy a car in one lump sum, a car loan from a lender can help you realise your dream of owning a car.
Applying for a car loan is now simple, quick, and paperless, and you can submit the car loan application form online with a few mouse clicks. Almost every bank now offers car loans with low-interest rates, and it is now relatively simple to obtain a car loan and then pay EMIs based on one’s affordability.
As a result, as a beginner, familiarise yourself with the following car loan facts:
Car Loan Eligibility Criteria
The following are the basic eligibility requirements for obtaining a car loan:
- The applicant must be a resident of India, whether in rural, semi-urban, or urban areas.
- The applicant’s age should be at least 18 years old and no more than 75 years old when applying for a car loan.
- They should earn at least Rs. 10,000 per month.
- The applicant must be either salaried or self-employed and have at least 2-3 years of work experience.
- The applicant must have an approved residence with adequate parking space, either inside or outside.
- They should have lived in the same place for at least a year.
If you are qualified to apply for a car loan, you should proceed to the next step of the documentation process. To ensure that the loan process is carried out smoothly by the banks or any other financial institution of your choice, you must provide the following mandatory documents:
- A valid identity proof: The applicant must provide valid ID proof, such as a PAN card, AADHAR card, driving licence, passport, or another government-issued identity document.
- An age-proof: Because the applicant must be at least 18 years old, they must provide a supporting document stating their age. It could be a driver’s licence, a passport, a ration card, a school leaving certificate, or any other government document that states the age.
- Valid address proof is critical to provide a government-issued document that includes the current address. It could be an AADHAR card, a PAN card, or something else.
- Proof of income: Ideally, there are two types of employment: salaried and self-employment. Salaried individuals must provide current 6 months salary slips, last 3 months’ bank statement, Form-16, updated ITR, etc. In contrast, self-employed individuals must provide past 3 months’ bank statements, balance sheets, P&L accounts, ITR, etc.
- Signature verification: A signature verification proof is required to ensure that your signature is unique.
- Recent photographs: Keep two copies of recent photographs on hand, ideally two passports and stamp size photographs.
How to Get a Car Loan
- Know your budget: It is critical to understand your budget to determine the type of car you can afford. You should consider the expenses that will arise from applying for a car loan, such as car maintenance costs, registration fees, and so on.
- Plan the repayment amount: Plan the monthly instalment amount based on your budget to repay the amount. Calculate your interest rate, the length of the loan period, and the amount to be paid back in EMIs if necessary using the car loan calculator.
- Get approved first: It is critical to get your car loan approved to make the process easier and more flexible for you. Get it approved just before you go shopping for the car of your dreams.
- Go car shopping: The final step is to go car shopping for the car of your choice. Do your homework ahead of time to determine which car will be best for you and your needs. Remember to buy a car that is within your budget.
- Avail offers and discounts: Choosing the right time to buy a car, especially during the year’s end and holiday season, can help you save a lot of money because banks offer low-interest rates, waivers on processing fees, and other deals during these times. During the holiday season, keep an eye out for special deals and discounts.
The Application and Approval Process for a Car Loan
A car loan can be applied for online and in-person, and applying it online is the simplest way to avoid complications. Go to the bank portal where you want to submit your application, or you can go through a reputable third-party website. The following are the steps involved in the application and approval of a car loan:
- Check your credit score: Your credit score is an important factor in obtaining a car loan. You should first check your credit score as a beginner because banks prefer candidates with good credit scores.
- Fill out the application form: Next, submit your loan application to the bank of your choice and all required documents. Ensure that the form is properly completed and that all authentic documents are provided.
- Application verification: To determine your eligibility, the bank will verify your documents and review your profile and credit score. Your loan application will be processed if you are found to be eligible.
- Loan approval: It takes 1 to 5 days for a bank to approve a car loan. However, depending on the candidate’s profile, this period may differ from bank to bank.
- Loan disbursement: Following loan approval, the amount will be disbursed either to your account or directly to the car dealer from whom you will purchase the car.
How Does a Car Loan Work?
The applicant must first choose a car model. The bank will then provide maximum funding based on the car model’s price. After that, the applicant must insure and hypothecate the vehicle for additional security. The interest rate is then determined, and the EMI process is established. The EMI should be paid on time to keep the car from being repossessed. Whatever problems you may encounter, you must repay the loan within a specified time frame.
Features and Advantages
- Obtain finance for the purchase of new and used vehicles.
- The financing can range from 85% to 90% of the car’s on-road price. Under certain conditions, some banks offer up to 100% financing on the vehicle’s on-road price.
- The loan term can range between one and seven years.
- The loan amount can be 3 times the applicant’s annual income.
- Some lenders provide instant financing for automobiles.
- If you buy a car from a dealer or manufacturer with whom the bank has a relationship, you may be eligible for additional discounts and offers.
- The vehicle purchased with financing will be held as collateral until the loan is paid off.
- The most common repayment structure for a car loan in equated monthly instalments (EMI).
Aspects of a Car Loan That Should Not Be Ignored
Brand and model eligibility-
The car manufacturer can be an authorised Indian or any foreign car manufacturer. The car loan will be approved on any approved car model, but the funding is at the bank’s discretion.
Typically, banks offer car loans with interest rates ranging from 10% p.a. to 18% p.a. However, the interest rate is entirely determined by the borrower’s profile, loan tenure, and loan amount.
The EMI amount that the borrower must pay each month to repay the loan is determined by the loan tenure, loan amount, and interest rate. However, if you can pay more in lump sums, you can reduce your EMIs.
Typically, a borrower can choose a car loan repayment period ranging from 1 to 7 years based on their repayment ability. In some cases, the repayment period can be extended.
It is best to pay a substantial amount of money as the downpayment from your funds reduces the loan amount. The longer you take to repay your loan, the larger the loan amount, and you’ll also end up paying unnecessary interest rates.
Depending on the bank, other fees such as loan processing fees, pre-closure/foreclosure fees, stamp duty fees, late payment fees, and part payment fees are levied on a car loan.
How to Get a Low-Interest Rate Auto Loan
- History of credit: Because banks are wary of borrowers with low credit scores, you may encounter difficulties when applying for a loan for the first time. You can, however, make a significant down payment or apply with a co-borrower or guarantor to get loan approval.
- Conduct thorough research and loan comparisons: To get the most out of the car loan offers, you should research, compare the loan products, and choose the best one. It would be best if you also kept an eye out for the legitimacy of car loan products.
- Take out a loan with a guarantor: You can get a car loan with a guarantor even if you have a bad credit history. They could be anyone in your family or friends who has a good financial background and credit record.