The days of considering a car or two-wheeler a luxury are long gone. Owning a car has become essential for everyone in today's world. An auto loan puts everything within your reach, whether a used car, a commercial vehicle, your first car, or an expensive upgrade of an outdated model.
What is an Auto Loan? What are its different types?
Borrowers take out auto loans to buy new or used cars for personal or business use. Vehicles are used as collateral for secured loans, such as auto loans. Lenders offer it for two-wheelers (usually referred to as a Two-wheeler Loan), commercial vehicles (usually a Commercial Vehicle Loan), and new and used cars.
What does the borrowing/repayment look like?
Banks typically provide auto loans up to 85% for used cars and 90% for brand-new vehicles. The vehicle is pledged as collateral to the lender. The repayment period, usually between 12 and 84 months, is determined by your ability to repay and your monthly income.
What kind of interest rates are normal?
Interest rates are set by lenders based on the kind of car and loan amount. For auto loans, interest rates are typically fixed.
What is the process by which lenders approve an auto loan?
Compared to home loans, the approval process for auto loans is comparatively simpler. But before approving your loan application, lenders look for a few fundamental requirements, which are as follows:
- CIBIL Score and Report: Lenders consider the history of your past payments and present credit standing, just like they do for any other loan. A strong credit profile and a high CIBIL score are factors lenders consider when deciding whether to approve your loan application. A higher CIBIL score raises your chances of getting approved for a loan. To view your CIBIL Score and Report for free right now, click this link!
- Employment and Income Status: To guarantee loan repayment for the full loan term, lenders also verify that you have a reliable source of monthly income and a stable job.
- Present Loan Repayments: Before deciding whether to approve your loan request, lenders also monitor your current equal monthly instalments. They typically calculate your monthly income ratio and EMI outflow. Ensure that the amount of EMI you must pay represents a reasonable portion of your income.
Which paperwork is needed when applying for a car loan?
The precise paperwork needed differs depending on the lender. But the fundamental list of paperwork that lenders need is as follows: proof of identity, proof of address, proof of income, and bank statement.
What other costs, fees or charges do I have to incur?
It would help if you considered additional expenses such as taxes, registration fees, insurance premiums, processing fees, documentation fees, stamp duty, and other related costs in addition to the vehicle's purchase price. Double-checking the expenses and fees before applying for a loan is always a good idea.
What to watch out for?
You can always choose a different lender if they provide better loan terms; you are not limited to using the bank that your car dealer recommends. Thus, before choosing a lender, always research and compare lenders and their rates.
