Getting a car loan can help you achieve your ambition of owning a car. A car loan enables you to purchase your preferred vehicle by borrowing money from banks and other lenders and returning it over time in manageable installments. In India, the lender will take into account a few factors to determine your eligibility to repay the loan amount. The auto loan has the same requirements as a personal loan, such as eligibility, a strong credit score, an EMI calculator, etc. Let’s now look in more detail at the elements that are frequently taken into account when applying for a car loan.
Importance of credit score in getting a car loan
The three-digit number will have the biggest impact on how likely you are to be able to repay the vehicle loan. A quick car loan with a low-interest rate is available to you if your credit score is good and is above 750. If you have an excellent credit score, your chances of being approved are high. The benefits of having a high credit score are;
Chance of less rejection
Before authorizing the loan amount, the lender will review the loan applicant’s credit record because the credit score is a gauge of creditworthiness. If the applicant has a high credit score, there is a good possibility that the loan will be approved; nevertheless, if the applicant has a poor credit score, the loan application will be denied because the applicant has a history of defaulting on loans.
Influence the interest rate
The interest rate on the car loan will depend on your credit score just like it would for a personal loan. You will be very creditworthy if you have a credit score above 750. If your credit score is high, the lender will offer you a loan with a low vehicle loan interest rate.
A person with a strong credit score will have more possibilities for obtaining loans from lenders. Low credit scores can prevent loan applicants from being approved for the requested loan amount.
A person with a high credit score will also benefit from extra perks like special discounts, deals that require no down payment, minimal processing costs, etc.
The types of car loans
New car loan
Many banks offer loans for purchasing new automobiles. Depending on the type of car, the interest rate will vary. The typical interest rate will be in the 8–15% range. Different banks will offer loans with various interest rates.
Used car loan
You can borrow up to 90% of the value of a used car if you wish to buy one. However, compared to newer cars, the interest rate on these older vehicles is greater. The interest rate will be quite a bit higher than that of new autos, ranging from 8 to 16 percent. There is a maximum eight-year payback period.
Loan against the car
You will have immediate access to a new car loan thanks to the availability of a loan against your previous vehicle. Compared to other auto loans, this one has a higher interest rate. An annual interest rate of 14 to 15% is imposed by lenders.
Eligibility of a car loan
The eligibility for car loans is the following;
- Should have a good credit score above 750.
- The minimum age is at least 18 years.
- The maximum age of eligibility is 60 years old with a monthly salary.
- The car loan applicant should earn at least Rs 10000 per month
- The minimum annual income is Rs 3 lakhs.
- Salaried or self-salaried can opt for a car loan.
Benefits of vehicle loan
Flexible tenure period
The length of the loan term is up to the loan applicants. A tenure period of up to 7 years is offered by many institutions. Each person has the option to select the tenure period that works best for them.
Negotiable interest rate
If you have an excellent credit score, you can negotiate with the bank to lower the interest rate on the car loan.
No security needed
A car loan can be obtained without any collateral. Here, the vehicle will serve as security for the loan amount requested, therefore the bank will seize your car in the event of a loan failure.
Choose the payment method
You can choose from a variety of handy payment options here, including cash, online payments, EMI options, auto-debit, etc.
Loan for a used car
With car loans, the applicant is fully permitted to borrow money to buy a new vehicle. But compared to the rate on new cars, the interest rate will be greater. Older vehicles will have a lower loan-to-value ratio than newer vehicles.
Documentation required to avail vehicle loan
Application forms, proforma invoices, applicant passport-size photos, and KYC records are the minimum requirements.
Attach a passport-size photo and your signature to the application form.
- Identity proof
- Address proof
- Income proof
- Age proof
As was previously said, a person’s credit score is important when applying for loans and credit cards. We have briefly examined the benefits, eligibility, importance, and credit score requirements of car loans.