Beginners guide to Car Loans
Buying a car is often your first significant financial commitment. It is like taking the first step towards a happy and prosperous life. But getting your hands on a flashy new set of wheels can be tough if you do not have enough savings to buy one outright. So, if you are facing such a situation, a car loan might be of great help. Before making any move towards purchasing a new car, you need to thoroughly research and know how to get the best deal on car loans. Understand here the basics of this loan and make your car loan application fast and easy.
Basic eligibility criteria for a Car Loan
- Age: The minimum and maximum age limit of the applicant to apply for a car loan should be at least 18 years or a maximum of 75 years.
- Minimum net monthly income: The minimum net monthly income of Rs. 3,00,000 per year, including the income of the spouse/co-applicant.
- Nature of employment: The applicant should be either a salaried or a self-employed individual with at least 2-3 years of working experience.
- Country or place of residence: The applicant should be residing in India, be it in rural, semi-urban, or urban India.
- Duration of stay in current residence: The applicant should have residential stability of at least one year.
- Credit Score: 750 or above with a good credit history.
Documents required for Car Loan
After knowing the eligibility, the next important thing to know and understand is the documentation. To make sure that your loan application is processed smoothly by the banks, it is necessary to provide the following documents:
A valid identity proof- (Any one of the following)
- PAN Card
- Aadhaar Card
- Permanent Driving License
- Passport or any other identity document issued by the government
A valid age proof- (Any one of the following)
- PAN Card
- Aadhaar Card
- Permanent Driving License
- Passport
- Ration Card
- School leaving certificate or any other government document that mentions the age
Income proof- (Any one of the following)
For Salaried individuals
- Current 6 months’ salary slips
- Past 3 months’ bank statement
- Form-16
- Updated ITR
For Self-employed individuals
- Past 3 months’ bank statement
- Balance sheets
- P&L accounts
- Updated ITR
Signature verification – To ensure your signature is unique, a signature verification proof is required.
Recent photographs – Two copies of passport-sized photographs.
Things to check while applying for car loans
Car brand and model- The bank sanctions loan amount only on the approved brand and car models. So, it becomes important for you to check everything related to your car before going for car loans.
Rate of interest – Unlike other secured financing options, car loans are offered at a low rate of interest. However, the rate of interest depends upon the borrower’s profile, loan tenure, and the amount of loan. The higher your credit score, the better will be your eligibility.
EMI amount– The EMIs that you need to pay every month is decided based on loan tenure, loan amount, and the interest rate. Knowing about the EMI payments in advance will help you to assess your loan affordability.
Repayment tenure- Typically, a borrower can choose a car loan repayment period of 1 to 7 years based on his/her repayment ability. The repayment tenure can also be extended in certain cases which is totally upon the bank’s discretion.
Down payment- It is best to pay a full loan amount as the down payment to reduce your loan burden. The more time you will take to repay your loan, the higher will be the loan amount. Also, you will end up paying unnecessary interest rates that will make your loan cost high.
Important factors to consider while choosing a Car Loan
Here are a few factors that you need to consider while availing a car loan for the first time:
Choose a shorter loan repayment tenure – A shorter loan tenure ensures the complete loan repayment faster, resulting in lower interest cost. Therefore, it is always recommended to choose a shorter loan repayment tenure
Know your EMI repayment ability- In car loans, one can repay the loan in easy EMIs every month. To calculate the monthly expenses on your car loan, you can make use of an online car loan EMI calculator to know the estimate. Doing so will help you to set up your budget accordingly without hampering it.
Associated services and charges – Other than processing fees, several other charges are levied by the bank on your car loans such as pre-closure/foreclosure charges, stamp duty charges, late payment fees, and part payment charges. These charges may vary from one bank to another which can increase the overall cost of your loan. Hence, checking all of them beforehand becomes important.
Car Loan application process
A car loan application process is very simple and convenient. You can easily apply for the same online or offline according to your convenience. Applying it online will be the easiest way to reduce the hassles of visiting a bank branch. To file your car loan application, you just need to visit your preferred bank’s official website or through any Fintech portal. The steps that are involved in the filing of application and approval of car loan are as follows:
Check your credit score - A credit score is a very important aspect of the car loan. If you are applying for a car loan, check your credit score would be the first step. This is because the banks are willing to offer the loan only to such individuals who have a good credit score.
Fill up the application form: In the next step, you need to fill up your loan application form and submit it along with the desired documents. Make sure that the form is duly filled, and you provide all authentic documents.
Application verification- In the third step, your documents and credit profile will be verified to evaluate your eligibility. If you are found to be eligible your loan application will be processed in less time.
Loan approval- After verification is completed, usually banks will take 1 to 5 days to approve your car loan. Though, this period might vary from bank to bank depending on the borrower’s credit profile.
Disbursal of the loan- After your loan gets approved, the loan amount will be disbursed either to your bank account or directly to the car dealer with whom you will be buying the car.
Tips to pick the Car Loan at a low-interest rate
Shop around for the best rate- To get the maximum benefit of the car loan offers and discount, you need to do thorough research by comparing the multiple banks and car loan offers and then picking up the best one.
Keep a check on your credit score- Tracking your credit score and report frequently is important if you want to avail the best offer on your car loan. If you have a good credit score, your chances of loan approval are more likely to become high.
Take a loan with a guarantor- A guarantor will enable you to get a car loan when you do not have an optimum credit history. A guarantor to your loan can be anyone from your family or friend. Make sure they must have a good financial background and credit record.
