A car loan is nothing but the funds that one borrows from a lender for the sole purpose of purchasing a car of his or her choice. Lenders like banks and Non-Banking Financial Companies (NBFCs) offer auto finance to consumers in the form of new and used car loans. From luxury sedans to hatchbacks, car loans are available for almost all passenger vehicles and commercial vehicles in the market. A car loan is repaid with interest through Equated Monthly Installments (EMIs) over a specified period of time called the loan tenure.
Applying for a car loan is easy, especially when done online through the bank website or a reliable third-party website. The applicant has to submit income proof (the latest bank statements, last 3 months’ payslips, and IT returns), age proof (birth certificate and 10th or 12th school certificate), identity proof (PAN, Passport, Aadhaar card, Voter’s ID or Driving licence) and address proof (ration card/utility bills like telephone or electricity bill) along with a duly-filled and signed car loan application form to the bank. The bank will verify the details furnished by the applicant and process the loan application. Upon approval, the car loan amount will be transferred to the applicant’s bank account immediately.
Is it because cars are a convenient mode of transportation that can take you from place A to place B in a short period of time when compared to say, walking or taking public transport? Whether you are commuting to office or dropping off your kids at school, a car of your own can come in handy for traveling short and long distances. There are people who love to go on cross-country road trips using their own car rather than rent one and worry about the cost of damage to a rental car. What’s more, owning a car is considered to be a status symbol, especially in the case of car enthusiasts who want to own either the fastest car or the most luxurious car in the market.
Now that we have established valid reasons for the need to own a car, let’s focus on how a person can afford a car of his or her choice. If you are fortunate, you may receive a car as a graduation or wedding gift from your family. You also have the option to use your savings to purchase a car. However, breaking a long-term savings scheme like Fixed Deposit to purchase a car is not a smart financial decision. So, you are left with one other option and that is car loan. Banks and Non-Banking Financial Companies (NBFCs) in India offer car loans at competitive interest rates for a flexible loan tenure of 1 to 7 years.
Any individual aged 21 to 65 years with a good credit score and a steady income can apply for a car loan. Whether you are a salaried individual or a self-employed person, the minimum annual income requirement of an applicant is Rs.2 lakh. The applicant should have at the least 2 years of work experience in the same profession. In other words, the individual must hold down a job in the same field for minimum 2 years. Banks look at the applicant’s credit history at the time of processing a car loan application as it shows the person’s credit management skills. Having a credit score of 750 or above will make you eligible for a car loan. A good credit score indicates your creditworthiness. Depending on whether you meet the car loan eligibility criteria set by the bank, your car loan will be approved or denied. Before applying for a car loan, check your car loan eligibility online so as to avoid rejection. Too many rejections will have a negative impact on your credit score.
Understanding how a car loan works can help you choose a suitable car loan offer. Here are the important features of a car loan:
New car loan and used car loan differs not only in purpose of the loan but also in interest rates and loan tenure. Obviously, the cost of a new car is higher than the cost of a second-hand car. However, does the same apply to the cost of new and used car loans? Listed below are the differences between new and used car loans:
The insurance cost of a used car is higher than a new car depending on 2 factors - maintenance cost and safety features. The maintenance cost of a used car is higher than a new car and the safety features available on a new car is more compared to a used car. Therefore, the insurance premium is higher for a used car compared to a new car. Similarly, the depreciation of a new car is rapid when compared to used cars. The depreciation rate of a used car is comparatively lower.
Car loans offer a respite to consumers who want to purchase a car of their choice but don’t have sufficient funds to do so. When choosing a car loan offer, pick one with the lowest interest rate, a suitable loan tenure, zero processing fee, and flexible repayment options. Car loans are available for the purchase of most makes and models of cars in the passenger and commercial vehicle segments, ranging from hatchbacks and sedans to Sports Utility Vehicles (SUVs) and Multi Utility Vehicles (MUVs). You can also get tax deductions on car loans for commercial vehicles.