Importance of car loan interest rates
Car loan interest rates are one of the most important factors as it makes their loan expensive or cheap. The reason is that interest rates are not the same for all banks and financial institutions. It differs based on loan tenure selected by the customers. Whether you are willing to buy a used car or old car, choose a lender that offers car loans at a low-interest rate, flexible loan tenure, and a low processing charge. You can get up to 100% financing for your dream car.
Here are the ways through which one can avail of low-interest rate car loan offer:
Maintain a good credit score: Be it is a car loan or personal loan; in both cases credit score and credit history play a major part in determining the approval of your loan. Any score which is 750 or above is considered a good credit score. Higher is the credit score better are the chances of car loan approval at low-interest rates. But in case you have a bad credit score, it reflects the applicant’s bad credit history and inability to pay.
When you give a higher down payment:
Higher is the down payment you pay, the lower will be the cost of your car loan. If you have a sudden inflow of cash or have been saving up to buy a car, in that case, you can use those funds to make a down payment and apply for a car loan to pay for the rest. This brings down the principal loan amount you need to borrow to pay for the car.
Steady income and type of occupation:
At the time of checking your car loan eligibility, along with a credit score, the income proof is also an important point to check for the lender to get an idea of the creditworthiness of the loan applicant. As they prefer only those loan applicants who are having a steady income and stable occupation.
Low debt to income ratio
To calculate equated monthly installments for your car loan, you need to decide the loan amount and tenure. You are required to enter the loan amount, interest rate, and processing fee into the car loan EMI calculator. The tool will give you instant results that you are looking for i.e. monthly EMI payment, gross payment in interests, and monthly reduction of the principal loan amount. It is wise to have a low-debt-to-income ratio and it is only possible when your EMIs should not exceed 50% of your salary.
Select your loan tenure carefully
The shorter is your loan tenure, the lower will be the car loan interest rate and vice versa. Loan applicants might consider it difficult to choose the right loan tenure. It is wise to make use of Car loan EMI calculator to calculate the total interest payment for the selected loan tenure and settle for the one where your overall interest payment is less as compared to other loan offers.
For instance, you might choose a smaller EMI amount for a seven-year loan period. But if you calculate, then you realize that the total repayment in seven years is much more. Hence it better to select the minimum loan repayment tenure that can help you in saving a lot of money in the long run. Always try and opt for a loan tenure in the range of 3-5 years.
Age and the model of the car
When you apply for a car loan, the vehicle against which you have applied for a loan is considered as collateral by the lender. In the case you make a loan default then the lender will hold onto the car to clear all the outstanding dues. That is why financial institutions take the age and model of the car into account at the time of determining the interest rates.
The rate of interest differs from floating to flat and varies from lender to lender. Obtain quotations from different dealers of the desired vehicle. Usually, a car dealer has a tie-up with different lenders and hence you might get various quotes on interest rates and other charges. This can help you in making accurate evaluations of the deals available while helping you the best deal for your car.
