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Things To Keep In Mind While Applying For A Car Loan

By Author: Neha Sharma
Total Articles: 214

Everyone dreams of purchasing a car of his/her own at some point in life. Owning a car gives you a sense of satisfaction and confidence. Moreover, it makes your life comfortable. You can commute to work in your own vehicle and need not depend on public transport. You can also travel to distant locations and enjoy a peaceful, leisurely weekend, and so much more.

Earlier, purchasing a car was difficult, since one had to spend a lump sum amount. Today, buying a car is much easier. Commercial banks and Non-Banking Financial Companies (NBFCs) offer an auto loan with EMI options, which do not strain your budget.

If you are keen on purchasing a car and wish to take a loan, here are five things you need to keep in mind-

• Interest rate
Depending on the car model, loan tenure, and your monthly income, the rate of interest on car loan varies between 8.5% and 14% per annum.

• Loan EMI
The car loan EMI depends on two factors- loan tenure and loan amount. Before you take a car loan, you must consider your current income status, any existing EMIs on previous loans etc. Ideally, the car loan EMI should not exceed 40% of your monthly income.

• Processing fee
This is a non-refundable fee that the lender charges to cover the incurring cost while evaluating the loan application. The fee amount can range between Rs.1000 to Rs.10,000.

• Pre-payment charges
It is wise to pay the loan amount in advance since the value of the car depreciates over time. However, loans with a fixed rate of interest have high pre-payment charges that can go up to 5% of the outstanding loan amount. Some lenders have restrictions on the total amount and number of pre-payments allowed in a year or during the loan tenure.

• Loan amount
The lender determines the loan amount. It is advisable that you pay the maximum amount out of your pocket on the car as down payment. That will reduce the loan amount.

• Loan tenure
Most auto loan lenders offer loans for a period of 7 years. The longer the tenure, higher will be the rate of interest. One should try to repay the loan as early as possible since cars are depreciating assets. However, if you choose to go for a shorter tenure, you will have to pay higher EMIs.

• Credit score
A credit score is a major factor when it comes to the approval of your car loan. Usually, a credit score of 750 and above is desirable if you are planning to apply for a car loan. Many lenders use credit score to determine the rate of interest.

• Documents required
Before taking a loan for your car, make sure you have these documents in hand-
 Proof of Identity such as PAN Card, Driving license, Passport etc
 Proof of Address such as Voter ID, Passport etc
 Age proof
 Photographs
 Documents of your newly purchased car
 Income proof such as 6 months’ bank salary account statement or 3 months’ salary slip

Once you are familiar with the various parameters of a car loan, applying for the same seems convenient. To get the best deal on car loans, compare various offers from different lenders. You can also apply for a car loan online since it is timesaving and hassle-free.

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