Buying a car can be a big deal for a lot of people. It can be like taking the first step towards a new big financial commitment . But it’s not always easy to get a new car, especially if you don’t have enough money saved up to buy one right away. This is where a car loan can come in handy.
Before you buy a car, it’s important to do some research and figure out how to get the best deal on a car loan. This can make the process of getting a loan and buying a car a lot easier. By understanding the basics of car loans, you can make your car loan application fast and simple.
Considering a car loan in India? Here’s what you need to know.
Car loans are really popular in India and have been for the past decade. More and more people are taking out car loans to help them buy a car. There are lots of financial companies and banks in India that offer car loans to customers.They generate their revenue and earn money by charging interest on the loans .
Car companies are teaming up with the banks to offer special deals to customers who want to take out a car loan. This means that there are a lot of options available for people who want to buy a car. You can find budget-friendly cars as well as luxury cars like sedans.
If you are a government employee, you might be able to get a lower interest rate on your car loan, depending on how much money you want to borrow and other important factors. The interest rate on your car loan will depend on things like how much money you want to borrow, what type of car you want to buy, your credit score, and other things too.
A Guide for First-Time Buyers: Steps to Get a Car Loan
When you want to buy a car and need money to pay for it, there are some things you need to do to make sure you get a good deal. You can get the money from the car dealership or from somewhere else. Sometimes it’s better to look around to find the best deal because the dealership might not have the lowest price. You can check with other places to see if they can give you a better price for the money you need to buy the car. This will help you get the best deal for your car.
Step 1 Check Your Credit
When you want to buy a car and need a loan, the first step you should take is to check your credit report and credit score. Your credit score is a number that shows how reliable you are at repaying money you’ve borrowed in the past, and it ranges from 300 to 850.
Knowing your credit score is important because it can affect the interest rate you get on your car loan. Generally, people with higher credit scores get better interest rates, so it’s a good idea to try to keep your credit score in good shape.
Although there is no specific credit score requirement to obtain a car loan, having a credit score higher than 660 can increase the chances of getting a more favourable interest rate. If you check your credit score before starting your search for a car loan, you can estimate the interest rates you may qualify for and narrow down your search to lenders who are more likely to approve your loan.
By obtaining a car loan with a better interest rate, you can save money in the long term and prevent any unexpected surprises while purchasing a car.
Step 2: Determine How Much You Can Afford to Borrow for Your Car
Before taking out a car loan, it’s important to figure out how much money you can borrow and what you can afford to pay each month. First, consider the monthly payment. Think about how much money you can afford to pay each month without it affecting your ability to pay other bills or save money.
Next, consider how much you can pay as a down payment. The general rule is to put down 20% of the car’s value upfront. The more money you put down, the lower your monthly payments will be.
It’s also important to think about how long you want to take out the loan for. While longer loans may mean smaller monthly payments, they also mean that you’ll be paying interest for a longer period of time. This can cause you to owe more on the car than it’s worth, which is called being “upside down” on your loan.
To avoid this situation, choose a loan that’s no longer than 60 months. If you find yourself needing a longer loan, consider choosing a less expensive car, making a larger down payment, or paying more each month.
Step 3: Find the Right Lender for You
Once you’ve figured out how much you can spend and checked your credit score, it’s time to start searching for a lender who can give you a loan for your car. You have a few lender options to choose from:
- Credit unions: Credit unions are smaller financial institutions that operate locally and can offer lower interest rates than big banks. However, you may need to become a member first, which can depend on where you live or work, and the requirements for membership may vary.
- Banks: Many big banks also offer car loans, and if you already have an account with them, it might be worth considering their loan options. However, keep in mind that banks typically have higher interest rates on auto loans compared to credit unions.
Online lenders: There are some banks and lenders who operate online and offer car loans. They may have lower interest rates due to their lower overhead costs.
Step 4: Get pre-approved for a car loan
Now that you have some lenders in mind, it’s time to apply for pre-approvals. This means the lender will check your credit score and financial information to conditionally approve you for a loan. You can apply to more than one lender to compare the interest rates and terms they offer.
Even though dealerships may offer financing options, it’s important to check all the available offers. Dealerships may charge higher interest rates, so it’s a good idea to compare their offer with pre-approvals you’ve received from other lenders. This will ensure you are getting the best deal.
If you’ve applied for a car loan with Refer Loan, our team of experts will contact you and help you with the documentation, credit score, and confirm the best interest rate for you. We aim to make the process fast and easy for you.
Step 5: Compare pre-approval offers
When you apply for pre-approval, the lender will check your credit score and financial information to conditionally approve you for a loan. You can get pre-approved from multiple lenders, and they will generally give you a written offer that outlines the loan amount, interest rate, and term of the loan.
It’s important to compare these pre-approval offers to find the one that best fits your needs. Take a look at the interest rate, which is the percentage of the loan amount that you’ll pay in addition to the loan itself. A lower interest rate simply means you’ll pay less in total over the life of Car loan. You should also consider the term of the loan, which is the length of time you have to repay the loan. A shorter term generally means you’ll pay less in interest, but your monthly payments will be higher.
Take some time to compare these offers and choose the one that fits your monthly budget and overall financial goals. Remember that you have two weeks to gather as many pre-approval offers as you’d like without affecting your credit score, so take advantage of this time to find the best deal for you.
Step 6: Accept an Offer
Accepting a loan offer is an important step in the car-buying process. It’s important to have all the necessary documentation ready, such as your driver’s license, proof of income, proof of insurance, and proof of residency, so that you can quickly and easily finalize the loan agreement.
Once you’ve accepted the offer, the lender will send the funds directly to you or the dealership, depending on your preference. This means that you can use the funds to purchase the car of your choice.
It’s important to remember that taking out a loan is a serious financial commitment, so make sure you carefully review the terms and conditions of the loan before accepting the offer. If you have any questions or concerns, don’t hesitate to reach out to the lender or a financial advisor for guidance Call Refer Loan.
Step 7: Final Destination – Car dealership
Now that you have accepted the loan offer and have the funds, it’s time to head to the dealership to choose your car. Once you’ve found the one you want, you’ll need to sign some paperwork at the dealership. The lender you selected will send you a blank check. You will fill out the check once you and the dealer agree on the final price of the car. It’s important to remember that you will also need to make a down payment at this time.
Once you’ve completed the paperwork and made your down payment, you can drive off the lot in your new car. The lender will then send you information on how much you owe and how to make payments. Congratulations on your new car!
Step 8: Streamline Your Car Payments with Autopay
Paying your car loan every month can be a hassle. That’s where “autopay” comes in. It’s when your lender automatically takes your payment from your bank account each month. It’s super convenient because you won’t have to remember to make the payment yourself.
What’s even better is that some lenders offer a discount on your interest rate if you sign up for autopay. This means you could save some money over time.
To set up autopay, you can do it online or over the phone with your lender. Some lenders will even tell you about the rate discount before you apply, so you can make an informed decision. If you want to learn more about autopay, check out your lender’s website or look in the paperwork they give you after you finalise your loan.
Get in the driver’s seat of your dream car with Refer Loan’s easy and stress-free car loan application process!
Types of Car Loans Offered: A Guide for Car Buyers
When it comes to buying a car, most of us need some form of financing to afford the cost of the vehicle. There are several types of car loans available in the market, each designed to cater to specific needs of car buyers. Here is a brief guide to the most common types of car loans offered by banks and finance agencies:
Loan for a New Car
A new car loan is a type of loan that banks provide to help people buy a brand-new car. When you take out this type of loan, the bank will give you money to pay for most of the car’s cost, but you will need to pay some of the money yourself as a down payment. Typically, the bank will cover up to 85% of the total cost of the car, and you will need to pay the remaining 15% as a down payment.
When you take out a new car loan, the car itself is used as collateral, which means that if you don’t make your loan payments on time, the bank can take the car back from you. You can usually apply for the loan either before or after you’ve chosen the car you want to buy, depending on the bank’s policies.
Example of a new car loan in India:
Suppose you want to buy a brand-new car worth Rs. 10 lakhs, but you don’t have all the money to pay for it upfront. You could apply for a new car loan from a bank that offers this type of financing. The bank might approve your loan application and agree to lend you Rs. 8.5 lakhs, which is 85% of the total cost of the car. You would then need to pay Rs. 1.5 lakhs as a down payment, which is 15% of the car’s cost
The bank would use the car itself as collateral for the loan, which means that if you were to default on your loan payments, the bank could repossess the car. You would need to make regular payments to the bank over the course of the loan term, which might be several years, until you’ve paid off the entire loan amount plus any interest and fees that the bank charges. Once you’ve repaid the loan in full, the car would be entirely yours to keep.
Loan for a Used Car
A used car loan is a type of financing that helps you buy a car that has already been used by someone else. Banks and finance agencies provide loans for pre-owned cars that are not more than 3 years old. When you buy a used car, it has already lost some of its value because it has been driven before. Therefore, the loan amount that you can get for a used car is usually lower than the loan amount for a new car. Banks typically offer 50% to 80% of the car’s current market value as a loan amount. However, in some cases, they may offer up to 90% of the car’s value.
Example of a used car loan in India:
Let’s say you want to buy a pre-owned car that’s not more than 3 years old and costs Rs. 5 lakhs. You have Rs. 2 lakhs to pay as a down payment, but you still need a loan of Rs. 3 lakhs to make the purchase.
You can approach a bank or finance agency that offers used car loans, and they may offer to finance up to 80% of the existing market value of the car, which in this case is Rs. 4 lakhs. So, you may be eligible for a loan of Rs. 3.2 lakhs (80% of Rs. 4 lakhs), which is higher than the amount you need.
However, it’s important to note that the actual loan amount and interest rate offered by the bank may depend on factors such as your credit score, income, and other eligibility criteria. It’s always a good idea to shop around and compare offers from multiple banks before choosing the best loan option for your needs.
Loan Against a Car
A loan against a car is a type of loan where banks lend money to people who own a car and need cash urgently. If you need money for any reason such as medical expenses, home renovation or paying off debts, you can apply for this loan. You can get up to 50-80% of the value of your car as a loan, and the car is kept as security. This means that if you are not able to repay the loan, the bank can take possession of your car to recover their money. However, once you repay the loan within the specified time, the car will be released back to you. This type of loan can be helpful in situations where you need cash urgently and do not have any other assets to use as collateral.
Example of a Loan against a car in India:
Suppose, Loan against a car in India would be if a person owns a car worth Rs. 5 lakh and needs a loan of Rs. 3 lakh urgently. They could approach a bank or financial institution and apply for a loan against their car. If the bank agrees to provide the loan, they would evaluate the value of the car and offer a loan amount up to 50-80% of the car’s value, which would be Rs. 2.5 lakh to Rs. 4 lakh in this case. The person would then need to pay back the loan amount with interest within the specified time frame, and once the loan is fully paid, the car would be released from the bank’s possession.
Conclusion
Understanding the different types of car loans available can help you make an informed decision when purchasing a car. It is important to research and compare the loan terms and interest rates offered by different banks to ensure you get the best deal possible. Remember to consider your financial situation and repayment capacity before finalizing any loan.
What Factors to consider while choosing a loan?
Here are the factors you should consider while choosing a car loan
Loan Repayment Tenure
Choosing a shorter loan repayment tenure is recommended as it ensures that the loan is repaid faster, resulting in lower interest costs. Generally, car loan tenures range from 1 to 7 years, and the borrower can choose the tenure as per their repayment ability. However, it is advisable to opt for the shortest tenure possible to minimize the interest cost and increase savings.
EMI Repayment Ability
In car loans, borrowers repay the loan in Equated Monthly Installments (EMIs) every month. It is crucial to determine the EMI repayment ability before availing the loan. One can use an online car loan EMI calculator to estimate the monthly expenses and determine if it fits their budget. Calculating the EMI beforehand helps borrowers manage their finances better and avoid defaulting on the loan.
Associated Services and Charges
In addition to processing fees, banks levy several other charges on car loans, such as pre-closure/foreclosure charges, stamp duty charges, late payment fees, and part payment charges. These charges vary from bank to bank, and borrowers need to check them before availing the loan. Being aware of these charges helps borrowers understand the overall cost of the loan and avoid any surprises in the future.
What Documents are Needed for a Car Loan?
If you’re thinking of taking out a car loan, it’s important to know what documents you’ll need to provide to the bank or lender. Having all the necessary documents ready can help ensure that your loan application is processed smoothly.
Here are the documents typically required for a car loan:
- Identity proof: You’ll need to provide a valid ID proof such as a PAN card, Aadhaar card, permanent driving license, passport, or any other government-issued identity document.
- Age proof: You’ll also need to provide a valid age proof such as a PAN card, Aadhaar card, permanent driving license, passport, ration card, school leaving certificate, or any other government document that mentions your age.
- Income proof: Depending on whether you’re a salaried individual or self-employed, you’ll need to provide different types of income proof.
Salaried individuals typically need to provide current 6 months’ salary slips, past 3 months’ bank statement, Form-16, or updated ITR.
Self-employed individuals need to provide past 3 months’ bank statement, balance sheets, P&L accounts, and updated ITR.
- Signature verification: You’ll need to provide proof that your signature is unique.
- Recent photographs: Two copies of passport-sized photographs are usually required.
What is the eligibility criteria for Car Loan?
Basic Eligibility Criteria for a Car Loan
If you’re planning to buy a car through a loan, it’s important to know the basic eligibility criteria to ensure that you qualify for the loan. Here are the main requirements that you need to meet:
Age Requirements
To apply for a car loan, you need to be within the age limit set by the lender. Typically, lenders require that applicants be at least 18 years old and not older than 75 years. This ensures that the borrower is legally an adult and is capable of repaying the loan.
Income Requirements
Your income is another crucial factor that lenders consider when assessing your eligibility for a car loan. You need to have a stable income source and earn a minimum net monthly income of Rs. 3,00,000 per year, including your spouse or co-applicant’s income. This income requirement assures the lender that you have sufficient funds to repay the loan.
Nature of Employment
Your nature of employment is also an important factor that lenders consider when assessing your eligibility for a car loan. If you’re a salaried or self-employed individual, you need to have at least 2-3 years of working experience in your field. This experience requirement assures the lender that you have a stable and consistent source of income.
Residential Requirements
Lenders also consider your place of residence and duration of stay when assessing your eligibility for a car loan. You need to be residing in India, whether it’s in rural, semi-urban, or urban India. Additionally, you must have residential stability of at least one year, which assures the lender that you have a permanent residence and are less likely to default on the loan.
Credit Score Requirements
Finally, your credit score and credit history play a critical role in determining your eligibility for a car loan. You need to have a credit score of 750 or above with a good credit history. This ensures that you have responsible credit behaviour and are likely to repay the loan on time. If your credit score is lower than 750, it’s recommended to improve it before applying for a car loan.
These are the basic eligibility criteria that you need to meet to apply for a car loan. By understanding these requirements, you can increase your chances of qualifying for a loan and securing the funds to purchase your dream car.
Understanding Car Loan Interest Rates in India
How interest rates work in car loans?
Understanding car loan interest rates is crucial when applying for a car loan in India. The interest rate is the primary factor that determines the cost of borrowing money to purchase a car. Banks and finance agencies use interest rates as a selling point for their loan products, and the competition between them is intense. For instance, if one bank offers car loans at 8.75% per annum, other banks may offer loans at a lower interest rate, like 8.50% p.a. or even less.
Interest Rate Competition among Banks and Financial Agencies
The top leading banks and financial agencies in India typically offer car loans with interest rates ranging from 9% p.a. to 13% p.a., but the interest rate varies from case to case. Banks consider the borrower’s profile, loan amount, repayment tenure, and other factors to determine the final interest rate.
Analysing Car Loan Products to Get the Best Deal
To get the best deal on a car loan, you should carefully analyse all available car loan products from different banks and agencies. When comparing interest rates, experts streamline buyers according to their income levels. Typically, a 6% interest rate is suitable for salaried individuals within the age group of 21 to 60 years, while up to 8% interest rate is suitable for self-employed individuals.
Negotiating Interest Rates Based on Eligibility Factors While the car loan interest rates are negotiable in some cases, borrowers can negotiate a lower rate based on their eligibility factors. It’s essential to shop around and discuss loan terms with at least three to four banks to get the best interest rate. Before starting the discussion, do your research on car loan interest rate trends to have an upper hand in the negotiation.
Finalising Car Model, Down Payment Amount, and Interest Rates for the Best Car Loan Deal
The interest rates on car loans have started to drop because car manufacturers are offering subsidised car loans at lower rates. It’s best to take advantage of the best offer that the car loan market in India has to offer. Therefore, to get the best car loan deal, finalise the car model you want to buy, determine the down payment amount, and then decide on the interest rates that work best for you.
How to Choose a Car Loan with a Low-Interest Rate?
Choosing the right car loan can save you a significant amount of money in the long run. Here are some tips to help you pick a car loan at a low-interest rate.
Compare different offers to find the best rate
To get the best deal on your car loan, it is essential to compare multiple banks and car loan offers. Comparing different bank terms allows you to find the most favourable terms and interest rates for your situation. By taking your time to research and compare, you can save a substantial amount of money over the life of the loan.
Keep a Check on Your Credit Score
Your credit score plays a significant role in determining the interest rate on your car loan. You can qualify for a better interest rate if you have a higher credit score. Make sure to monitor your credit score regularly and take steps to improve it if necessary before applying for a car loan. This will increase your chances of loan approval and help you secure a lower interest rate.
Consider a Loan with a Guarantor for Poor Credit
If you have a poor credit history, taking out a loan with a guarantor can increase your chances of approval. A guarantor is a person who agrees to pay back the loan if the borrower is unable to do so. Having a guarantor with a good financial background and credit record can reduce the risk for the bank and increase the chances of loan approval. However, it is crucial to ensure that you can afford the loan repayments before applying with a guarantor.
Choosing the right car loan with a low-interest rate requires research and careful consideration of your financial situation. By shopping around, monitoring your credit score, and considering a loan with a guarantor, you can secure the best deal and save money over the life of the loan.