Purchasing a four-wheeler is a tough task as it involves months and years of savings. In such situations, car loans score over other borrowing instruments amongst the average Indian middle-class. Four-wheeler are nothing short of a necessity today.
This emergence has led to several banks and financial institutions offering attractive car finance. When you shop around for auto loans, keep in the mind the following points:
1) The eligibility and documentation process: Just like other loans, four-wheeler loans too have a set of criteria which you need to fulfill. The important ones are credit score, income, and employment. The credit score must be around 750 and above. A poor credit score means high interest rates or maybe even rejection. So, ensure to monitor the report well before you begin the application process.
Apart from the eligibility, your documents are critical as well. Basic car loan documents include:
• ID and address proofs
• Signature proof
• Income proofs like salary slips, ITR, latest form 16, etc.
• Business continuity proof for independent and employment letter for salaried people
• Other papers specified by the lender
2) Amount, interest rates, and tenure: The loan amount depends on numerous factors such as income and credit score. It also depends on the repayment capacity of the individual, which is where the financial profile plays an important role. Most of the lenders sanction a loan amount up to INR 50 lakh, inclusive of the market value of the vehicle up to 80 per cent.
Owing to massive competition under this category, the interest rates are low. However, the rates are bound to get affected by loan amount, credit score, the tenure, existing relationship with the lenders, and other such factors.
Car loans are taken for a minimum term of 12 months. In rare cases, the term extends up to 5 years. Some lenders allow you to take loans for 7 years as well. Remember, longer tenures mean EMI payments decreases.
3) Additional charges: Apart from the interest rates, you have to consider extra charges that could increase your total loan cost. They are processing fees, documentation costs, part payment fees, loan cancellation charges, pre-closure or foreclosure charges.
Before you apply for car finance, follow these steps:
• Use the car loan eligibility calculator to figure if you qualify for the credit
• Pre-decide the loan amount and stick to it
• Conduct comparison between different loan providers to make an informed decision
• Do not blindly opt for lower EMIs
• Use the car loan EMI calculator to get the best deal in the market