Car Loan – Meaning, Features, and Eligibility: Once, owning a car was a rare luxury. Today, however, cars are a necessity in order to travel around the world.
Many lenders will help you achieve your car purchase dream by providing a car loan.
The process of applying for a loan car is easy, quick, and hassle-free. It takes just a few steps to submit an online car loan application. Most banks offer car loans at attractive interest rates. It’s easy to borrow a car and pay EMIs, depending on your financial situation.
Car loan – Definition, Features, and Eligibility
The Benefits and Features Of A Car Loan
1) Purchase new or used cars with financing. Under certain conditions, banks can offer 100% financing on the vehicle’s on-road cost.
3) The loan term may be one-year to seven years.
4) The loan amount may be as high as three times the applicant’s annual salary.
5) Many lenders offer instant financing options for cars.
6) Additional discounts and offers may be available if you buy a car directly from the manufacturer or dealer that the bank has an affiliation with.
7) The car that you finance will be secured until you repay the loan.
8) A car loan repayment plan that is most popular is the equated monthly payment (EMI).
Factors that Affect Car Loan
1) Credit score
Your credit score will be checked by your lender to assess your creditworthiness. Based on your credit report and score, the lender will contact you to discuss the loan amount and terms.
2) The ratio of debt to income
Lenders evaluate your income and other commitments at the end each month to determine if the new vehicle loan and its EMIs are within your financial capabilities. The lender will evaluate your ability to borrow money and then stand behind it by calculating your debt-to-income ratio (DTI). You will be eligible for a lower loan amount, regardless of your income, if you have a high DTI score. This increases the chance of your loan terms being strict.
3) Down payment
A car loan is subject to a certain margin. Margin refers to the amount of money you’ll have to spend from your pocket on top of the actual car price. Although there are 100% financing options available, they come with conditions.
It’s always beneficial to save money and use it to make a downpayment. That way you can borrow less, pay less interest to banks, and lower the cost of your car. Lenders will also appreciate a downpayment made from your side. Lenders will feel more confident that you plan well and can manage your money well, and will not default on repayments.
4) Age of vehicle
Used car loans are subject to the age of your vehicle. This is a major factor in determining the interest rates.
You must meet certain criteria to be approved for a loan. Let’s find out what factors will determine whether you are eligible to purchase a car.
|21-60 years||18 – 65 Years|
|Rs. 25,000.||Minimum turnover of Rs. 40 lakh|
|You can keep your home for up to 7 years||You can keep your home for up to 7 years|
|As high as 100%||As high as 100%|
- Photo ID and age proof
- PAN card
- Driving license required
- Completed application form
- Three passport-size photographs
- Residence Proof
- Valid passport
- Voter ID card
- Driving license
- Postpaid utility bill (gas and electricity bills)
- Bank account statement or passbook updated
- Notarized signed rent agreement
- Bank statement for the six most recent months
- Salaried individual
- Last three months’ Salary Slips
- Form 16 or Income tax returns
- Person who is self-employed
- Compute income for the past two years using balance sheet and profit & loss account.
- Income Tax Returns — last two years for applicants. 26AS, Traces
- The Business Proof:
- Gomasta license, registration certificate, service tax registration, among other things
- IT Assessment/Clearance Certificate
- Income Tax Challans/TDS Certificate (Form16A/Form26 AS for income declared under ITR).
What You Must Know
These are some things to keep in mind before you apply at a bank for a car loan.
1) Do your research
Compare the rates, fees and other terms and conditions of multiple lenders and banks in order to understand the market. Then choose the lender to which you will submit your application for a car loan.
A small difference in interest rates and other terms can lead to significant differences over time.
Similarly, get quotations from different dealers for your desired vehicle. You may find that some dealers have a relationship with the banks, which may allow them to offer you the same vehicle at an even lower price. You can find the best deal by approaching multiple dealers.
2) Provide complete documentation
After deciding on a lender, contact them. Once they have their website, make sure to keep all documents and documentation you need with your loan application. You should verify the validity of your driver’s license and any other documents, and make arrangements to renew it if it expires.
Do not allow the lender to deny or delay the loan due to insufficient documentation.
3) Select the repayment term wisely
You can use our car loan EMI calculator to calculate the EMI you will have to pay for a certain loan amount and repayment period. You can use this tool to determine your monthly EMI and loan tenure.
You will be able to negotiate the loan repayment term and EMI terms confidently with the bank representative. While you’re at the bank, consider the total cost for car ownership.
Although a longer tenure might seem attractive from an EMI standpoint, it will lead to higher interest payments.
4) Estimate the total cost of the car
As mentioned, car ownership costs are an important consideration when buying a vehicle. However, many people overlook the larger picture.
The total cost of owning and operating a car will depend on the amount of fees and costs, their nature, down payments, interest rates, down payments, total money that you will pay the bank between the start of your loan and the time you have paid off all of the debt, fuel cost, tax, and other expenses.
Different banks may charge different documentation and processing fees. If you want to close your loan account prior to the loan tenure, some lenders may impose a penalty. When choosing a lender, all these factors play a significant role.
5) Check out the Discounts and Offers
Lenders often offer festival discounts and offers for festivals such as Deepavali or Dasara. Lenders and car dealers may offer discounts or offers on other occasions.
There may be 0% financing schemes available at times. To save some pennies, keep an eye out for such offers.
How to Apply
You can get car loans through a variety of methods.
1) Go to the bank branch.
2) Submit your application online via the internet/mobile banking portal of your bank.
3) Go to the dealer for financing.
The bank you choose will gather your documents and start the application processing. It will check your CIBIL scores, the value of your vehicle, eligibility conditions and more. After that, a decision about your loan application will be made based on the evaluation results.