5 Things To Keep In Mind When Applying For Car Loan

5 Things To Keep In Mind When Applying For Car Loan

Whether travelling to work, running quick errands or going on trips, reliable transportation is essential for daily tasks

FPJ Web DeskUpdated: Friday, May 03, 2024, 01:32 PM IST
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Owning a car today is more of a necessity than a luxury. Whether travelling to work, running quick errands or going on trips, reliable transportation is essential for daily tasks. However, purchasing a car involves a significant financial commitment, especially when considering taking out a Car Loan.

Applying for a Car Loan may be a stressful experience. However, with careful planning and educated decision-making, you can confidently navigate the process and receive a Car Loan that meets your budget and needs. From understanding your credit score to reading the fine print in loan agreements, this post covers everything you need to know to achieve financial success.

Understanding Car Loan and Its Types

A Car Loan lets you purchase your car by lending money from banks. You can repay the loan amount using flexible monthly instalments known as EMIs. The following types of Car Loans are available for consumers:

New Car Loan: A loan for customers to purchase a new car directly from the showroom.

Pre-owned Car Loans: A Pre-owned Car Loan, also known as a used Car Loan, enables a person to purchase a used car.

Top-Up Car Loan: A Top-up Car Loan allows people to borrow more money on their current auto loan without applying for a new one. The lending institution decides whether or not to increase the amount of the loan.

Refinance Car Loan: Refinancing a Car Loan is when you replace an existing loan with a new one, usually from a different lending institution, and get better repayment terms. The new loan may have a different interest rate and term. The purpose of refinancing is to lower your monthly payments and free up cash for other financial obligations.

Pre-approved Car Loan: A Pre-approved Car Loan is when a lending institution has already approved you to borrow a certain amount of money before you apply for it. This is usually available to existing bank customers and is largely based on income, credit score, and balance maintained with the bank.

Applying for a Car Loan online is easy, but before you apply, you should keep in mind the following things:

1. Know Your Credit Score: A credit score indicates your credit history, including your loan repayments and credit card bill payments. Lending institutions utilise credit scores to determine loan eligibility, loan amount, interest rates, and repayment conditions. A higher credit score increases your chances of qualifying for reduced interest rates. You can also get a higher loan amount with a higher credit score.

You can check your credit score online through various legal websites. Before applying for a Car Loan, improve your credit score for higher acceptance. You can improve your credit score in the following ways:

Paying bills on time

Wisely using credit cards for purchases

Limit the credit applications

Regularly check your credit report

2. Set a Realistic Budget: A budget outlines how you allocate your monthly money. Making a budget might help you avoid running out of money every month. A budget can also help you save money for future aspirations or emergencies. Many cars might entice you. However, you must select a car that suits your budget and needs. You may create a budget using numerous tools available online.

Buying a car comes with additional costs, such as maintenance, fuel, taxes, additional accessories, and more. You must consider all the factors and create a list of all the cars within the selected budget and considered factors.

3. Research for Lending Institutions and Loan Options: Do your research and compare different lending institutions and Car Loan options to understand which loan offer aligns with your financial condition and goals. Major banks offer loans with competitive interest rates and attractive benefits. Don’t get carried away by lending institutions offering low-interest rates, quick access, and more without confirming their authenticity.

Remember, the interest rate you qualify for can impact the overall cost of your auto loan. A lower interest rate can help you save money on monthly payments while reducing the loan's total cost. As a result, before finalising your auto loan, you must take your time and assess your alternatives well. Some lending institutions provide complete financing, while some have down payment requirements.

4. Read the Fine Print: Reviewing loan conditions before signing off is critical for various reasons. You must understand your loan payment requirements. If your loan payment is due on a specific day each month, you should be aware of this to prevent paying late and hurting your credit score.

Understanding the loan conditions helps you decide whether a loan is right for you before you sign a repayment arrangement with the lending institution. You may reject the loan offer if you disagree with any loan conditions, such as a penalty charge or another restriction.

5. Be Prepared for the Application Process: Once you start the application process, it is important to be prepared. All your documents must be ready, including KYC details, identity proofs, address proofs, income evidence, and stability proofs for business or employment. Recent salary slips are necessary for salaried individuals, while self-employed applicants should provide financial statements or income tax returns. Preparing these documents ensures a smooth and efficient application process for a car loan.

The application process is easy and quick. Everyone can understand the process and apply for a Car Loan online.

The stepwise application process for a car loan is outlined below:

Visit the bank’s official website and navigate to the Car Loan section

Firstly, select the car and the model you wish to purchase.

Customise the loan according to your preferences.

Enter your details. Ensure you enter the correct information to avoid inconvenience.

Click on Apply now and get the loan quickly sanctioned.

You must also check the eligibility criteria to ensure you are eligible to avail of the loan. 

A good credit score.

A minimum monthly income of Rs 30,000.

Self-employed or salaried individuals must be aged between 21 and 65 years.

An existing relationship with the bank is advantageous.

Conclusion

Buying a car is a big milestone for most individuals. To get a great deal, take the time to study and comprehend Car Loan criteria and compare interest rates. You may also use the Car Loan calculator to get accurate EMI details. Being proactive about learning the many components of a Car Loan when applying for one will undoubtedly help you make a better decision!

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