We will help you get through the confusion and make an informed decision.
Guide to Getting a Car Loan
Here is the step-by-step guide to getting your car loan:
Decide Your Budget:
Before applying for a car loan, it is important to check your cash flow. The difference between your monthly income and expenditure is known as cash flow. You need to ensure that you don’t upset your monthly expenditure on essential items, including investing for financial goals and other EMIs.
Once you take into account your existing monthly obligations, check if your monthly surplus is sufficient to pay the EMI for the car. When you apply for a car loan, they will check whether all your EMIs are within 50% of your monthly income or not. This helps the bank assess your repayment capacity.
Credit Score:
Your credit history determines your CIBIL score. If you have high CIBIL score, then you get better terms from the bank. This would include comparatively lower interest rates, a longer repayment period, less paperwork, faster processing, and higher loan amount.
For a high credit score, you need to ensure that you pay your credit card bills and EMIs on time. If used smartly, you can save on your monthly expenses using credit cards with rewards and cashback. When applying for a car loan, the bank or financial institution will get your credit report from the credit rating agency.
If you have an ICICI bank account, go for the best ICICI credit card that has offers on travel, dining, and shopping. You can add your credit card to apps like CRED for higher discounts and benefits.
Compare Offers Online:
There are online aggregator portals where you will find offers on car loans from leading banks. Compare the offers and shortlist the best. Negotiate with the bank to see if they can give you a better deal.
The interest rate will also depend on the job profile, credit score, repayment capacity, and car model. Find out the offers made by different dealer finance companies.
Higher Down Payment:
If possible, make a higher down payment so that your monthly EMI obligation comes down. The down payment also determines the loan tenure and EMI amount.
You need to remember that the total cost of owning a car includes other charges like processing fees, and this will be part of your EMI.
Eligibility Criteria:
You can visit the online portal of the bank to check the eligibility criteria. You must be 21 to 60 years to apply for a car loan for salaried individuals. For self-employed persons, the upper age limit is 65.
The minimum income requirement is Rs. 3 lacs annually. You should be in service or business for at least two years.
Documentation:
For identity and address proof, the documents are required for salaried and self-employed individuals. The acceptable documents are Aadhar card, PAN card, passport, and driver’s license.
Salaried individuals need to provide their latest bank statements and salary slip for income proof. You also need to provide the last six months bank statement.
Self-employed individuals need to submit their income tax returns and last six months bank statement as income proof.
Calculate Your EMI
To calculate how much you need to pay per month as EMI, you can use the credit card EMI calculator. Enter the value of the loan, the loan tenure, and the interest rate for getting your monthly EMI. The monthly EMI will include the principal and interest rate.
Contact Your Existing Banker:
You can get your car loan processed faster if you approach your existing banker. Some banks offer attractive rates to their existing customers, require no documentation, flexible repayment tenures, and you can get your car loan in a few seconds through net banking.
You will get additional services like end-to-end advisory, including title transfer and assistance in selecting a pre-owned car. If you find that you are getting better offers from other banks, you can go with them.
Eligibility of Your Car
While most banks finance new cars, each has different rules when it comes to financing pre-owned cars. If you want a pre-owned car, find out the additional criteria. This will include the model, age, and condition of the car.
Some banks offer 100% finance for used cars bought from both dealers and individual owners.
Right Loan Amount:
Banks will offer you loans on the on-road price or ex-showroom price. The price you pay is the on-road price, so when comparing loans offered by banks consider this price.
The on-road price is 10% higher than the ex-showroom price since it includes lifetime road tax, registration charges, insurance, and logistics charges.
Creating an Emergency Fund
Just like any loan, it is important to set aside 3 to 6 months EMIs in an emergency fund. In case you face any financial emergency, you can use this fund to pay your EMIs on time. When you take a car loan, the asset is hypothecated to the bank.
In case of default, the bank will take possession of your car to realise your loan. Your car registration papers will have a hypothecation letter. Once you have cleared all your EMIs, the ownership will be transferred to you.
Types of Loans:
You can opt for a fixed rate or a floating rate car loan. The advantage of a floating rate interest loan is you don’t have to pay any prepayment penalty. For fixed interest rate loans, you pay a prepayment fee.
Some banks have restrictions on the amount and frequency of prepayments. If you go for a fixed interest car loan, choose a lender that has minimal restrictions.
Get Your Dream Car Today
Getting the right car loan is the key to getting your dream car. There are lots of choices for you, but you need to know which lender is giving you the best offer.
You should know your budget before you apply for a car loan. Find out all the charges associated with the car loan. Get the best bargain, and go for a drive.
