Securing a Car Loan is a crucial step for anyone looking to purchase a new vehicle and doesn’t have enough money on their own. In fact, data from the Reserve Bank of India (RBI) shows that around 80% of vehicles in India are financed through loans. One of the reasons for the popularity of car loans is due to their flexible repayment and loan tenure options.
To get a new car loan, it is necessary to conduct extensive research and find the loan that best suits your needs. Fortunately, securing a car loan has become easier with numerous lenders providing this service. Here is a simple 5-step process for securing a Car Loan
- Understand Your Requirements and Budget
Assessing your needs and budget is a crucial step before obtaining a car loan. Consider all the additional costs of car ownership, such as insurance, maintenance, fuel, and taxes. Research fair pricing for the vehicles you’re interested in to avoid overpaying or getting caught up in sales pitches.
Next, take a look at your budget. How much can you spend on a monthly car payment? Consider factors such as the down payment, monthly payments, and total loan amount. You should set a monthly payment limit based on your budget and stick to it. Look for the best car loan rates and favourable terms to avoid hurting your financial situation in the long run by being mindful of your finances.
- Check Credit Score
A good credit score is important for getting favourable interest rates and financing terms. Credit score shows how responsible you have been as a borrower. Pay your bills on time, settle any outstanding debts, and avoid penalties to keep your credit score in good shape.
A high credit score indicates that you have had a good credit history and are less likely to default on your loan payments. You can check your credit score for through various platforms. A good credit score is typically a score of 750 or above.
Regularly monitor your credit score and take proactive steps to maintain or improve it. If you’ve had issues with in the past, take steps to improve it before applying for a loan.
- Research Your Financing Options
Before taking out a new Car Loan, it is important to compare different banks. You should compare interest rates, loan terms, and any additional fees or charges that banks may levy. Pre-approval options can give you an idea of your eligibility and potential loan amount. You should read the loan terms and conditions of the financing options before applying.
There are two primary choices for securing financing for a car: direct lender financing or dealership financing.
Direct lender financing involves getting a loan from a bank, financing company, or credit union, allowing you to compare interest rates. It is generally considered the better option for most car buyers. Dealership financing is offered by the dealership itself but may not allow for a comparison of interest rates. It may result in inflated interest payments over the loan term. Consider looking for a loan that covers the on-road cost with a manageable down payment and a lower interest rate.
- Understand Your Emi and Charges
Calculate your Equated Monthly Instalment (EMI) amount and other applied charges on your Car Loan. Use online EMI calculators or consult with the banks to understand the EMI amount and repayment schedule. You should always be aware of any additional charges associated with the car loan. These charges include processing fees, prepayment charges, foreclosure charges, and late payment fees.
As a thumb rule, your monthly EMI payments should not exceed 35% to 40% of your income. You can reduce the overall cost of the loan by putting more money down upfront. It is advisable to avoid no down payment options. You should compare the charges offered by different banks to find the best deal. Some banks may waive off certain charges or offer a discount on the processing fees.
- Choose a Pre-approved Car Loan
You can get a pre-approval for a Car Loan to streamline and secure the process. This helps you set a budget and narrow down your options to vehicles that fall within your affordability range.
Banks offer pre-approved loans to their select clients. People who opt for pre-approved loans don’t require any documentation for their loan.
By following these five simple steps, you can increase your chances of securing a car loan that meets your needs and financial situation. You can find the best deal and avoid any surprises in the future. Consider a bank that has good customer service and a hassle-free application process. Also, calculating your EMI, budget, and charges helps to maintain your expenses. You should aim for a loan that offers a competitive interest rate. Read and understand the car loan terms and conditions of the lender before making any decision.