Gone are the days when most people could not afford a car. Nowadays, owning a car is more of a necessity than a luxury. All banks and loan lenders provide car loans for individuals. A car loan is the amount of money an individual borrows from loan lenders or banks in order to buy a car. Individuals will need to pay back the car loan by a specific date via Equated Monthly Instalments (EMI).
The duration of a car loan can vary from 1 year to 7 years. Car loans are also secure as there is a fixed interest rate for the duration of the loan. Individuals can make use of the Car Insurance Calculator to calculate the EMIs and duration of a car loan.
Documents that must be submitted for a car loan
The documents that are required for availing a car loan will depend on an individual’s source of income. Depending on the bank, the list of documents required may vary. Given below is the list of documents that are required by most banks and NBFCs:
The documents that must be submitted in order to avail a car loan are mentioned below:
- Age proof
- Proof of income such as the latest income tax returns, 6 months bank statements, 3 months’ salary slips, etc.
- Address proof such as Passport, Voters ID, etc.
- Car documents
- Identity proof such as Driving Licence, Passport, Permanent Account Number (PAN) card, etc.
Some loan lenders make it mandatory for the insurance of the car and the driving license to be submitted before they offer a loan.
Methods to increase eligibility in availing a car loan
The process of getting a car loan can be made simple by following the below steps:
- Improve your credit score: Credit score can be increased by clearing any outstanding loans and fixing any errors that may have crept in your credit report. Another way to increase your credit score would be to increase the credit limit of your credit card. It is also vital to use your credit card wisely.
- Step-up loans: A step-up loan allows an individual to pay a lower monthly EMI in the first half of the loan term and the EMI increases in the second half. Banks and loan lenders usually check the eligibility by considering low EMIs initially.
- Clear your debts on time: In case you have any pre-existing loans, it is vital to make sure that the EMIs for those loans are cleared on time. Having a clean record will increase your chances of getting a loan, as banks will know that the EMIs will be cleared on time.
- Check eligibility criteria: Evey bank has a different eligibility criterion for a car loan. It could vary with regards to the minimum salary, or the maximum loan amount, among other things. It is vital to do thorough research on the eligibility criteria.
- Buy the car from a reputed dealer: Chances of the car loan getting approved an increase if you buy the car from a reputed dealer who has a tie-up with the bank you wish you avail a loan from.
- Arrange all documents and down payment: Banks will ask you to pay a certain percentage of the car cost as a down payment. It is important to make sure all finances are ready. When applying for a car loan it is important to keep all the documents required in the order. There could be a delay in the car loan getting approved if documents are missing or incorrect.
- Apply from your existing bank: Getting a car loan from a bank you have an account it is easier since the bank will already have details of your credit history. A few banks may also offer instant loan approvals with the minimum amount of documentation for their customers who have a good credit history.
- Opt for a longer policy term: The most common way of improving your eligibility for a car loan is to increase the duration of the loan term. A longer loan duration allows you to pay a lower EMI and down payment. Lower EMIs can make the repayment also easier and hence the eligibility increases.
It is also important to know the interest rates, repayments, benefits, processing fee, and if any offers are available when buying a car on loan. Doing proper research and understanding the terms and conditions is also important when buying a car on loan.
Some of the main Benefits of Buying a Car on Loan are mentioned below:
- Easy to buy a car: Banks offer of up to 80% to 90% of the on-road price of the car on loan. Therefore, with a low down payment, most individuals will be able to buy a car.
- Loans on used cars: Many banks offer loans on used cars as well. However, the interest rates are higher on used cars than new ones.
- Loan duration is flexible: Individuals have the option to choose the duration of the loan. Banks offer car loans up to a duration of 7 years.
- Collateral not needed: No collateral for security purposes is required to avail a car loan. In case the payments are not made on time, banks or NBFCs will seize the car.
Things to know before applying for a car loan
Below is a list of important things to know when applying for a car loan:
- Interest rates: Loans are available for new cars as well as used cars. Interest rates are higher for used cars when compared to new cars. Currently, the interest rates for used cars are between 12.50% and 17.50% and for new cars are between 9.25% and 13.75%. Even a small difference in the interest rates can make a huge difference in the amount that must be paid back by you. Therefore, it is vital to check the interest rates.
- Credit score: The most important criteria that are checked by banks or NBFCs is the credit score of the individual. The credit score determines whether an individual will be able to repay the loan. If an individual has a low credit score, the loan may not be approved, or a low amount of loan would be approved.
- Amount of loan required: Your age and income are the main factors that determine the amount of loan that can be availed. Banks and NBFCs give out loans based on your annual income or monthly salary. Loan amounts up to 80% to 90% of the on-road price of the car to 100% of the ex-showroom price of the car are provided.
In case of loans for used cars, re-registration charges are not covered under the loan.
- Repayments: Banks and NBFCs usually offer a duration between 1 year and 7 years to repay the loan. Individuals can choose a duration as per their convenience. Pre-closure of the loan is possible at a pre-determined cost.
- Eligibility: Banks and NBFCs require certain eligibility criteria to be met for a car loan to be approved. These criteria may include age, type of employment, the area where the individual is staying, and their monthly salary.
- Compare quotes: It is vital to compare car loans from various banks and dealers. Dealers have tie-ups with different banks, therefore, the interest rates may vary. There are various third-party websites available where quotations can be compared.
- Check the processing fee and service tax: Most NBFCs and banks offer loans at low-interest rates but charge a high processing fee. It is vital to check the processing fee that is charged by NBFCs or banks. It is important to check the service tax that is being charged as well. While most banks charge the service tax as a lump sum, a few of them charge it on a yearly basis.
- Check for offers or schemes: Check if banks are offering any offers or schemes on car loans. Individuals who have a good credit rating are sometimes offered a 0% interest finance scheme on the loan amount.
- Hypothecation: In case you buy a car on loan, the car is pledged to the lender. If payments are not made on time, the lender can seize the car.
Once the loan amount is completely paid, it is important to change the name of the owner in the documents. Along with documents such as car insurance papers, address proof, and a No Objection Certificate (NOC), you must visit the Regional Transport Office (RTO) to remove the hypothecation.
However, the NOC must be submitted to the insurance company first before submitting to the RTO to change the name on the insurance papers.
Though the process of getting a car loan can be tough, especially if it’s your first car, following the above-mentioned steps would make it easier. It is also vital that you go through all the terms and conditions thoroughly. The EMIs should also be paid on time to avoid any penalties. Various car loan offers can be compared on third-party websites. Individuals can use the Car Insurance Calculator to find the best down payment and EMIs available on a car loan.
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