So here are some bank with their effective interest rates: -
But which finance option should we choose is an even more popular question, so our team decided to gather as much information as possible and come up with a blog where our readers can simply get to know all the steps which needs to be taken care of while financing a new or a used car.
So when we decide to buy a car on loan two types of loan comes up in our mind, the very first one is a car loan and the second is one personal loan.
So which loan should you choose ??
A car loan is made available strictly just to buy a car only.
On the other hand with a personal loan you can get a couple of things done like:- buying a car, finance for marriage purposes, healthcare, and many more.
The key differences between a car loan and a personal loan are: -
Steps to be taken into consideration before applying for a loan: -
- A bad credit score can result in the rejection of a loan application or a high interest rate.
- On the other hand, a good credit score gives the bargaining power to the borrower with which he can bargain a loan with a lower interest rate.
- To improve credit score or to maintain a good credit score, make sure you are paying you credit card bills and other credit payment on time before 6 months of applying for a loan.
- You can check your credit score online as well with the help of available Financial websites.
2.Complete documentation: - Make sure you have all the documents available with you before applying for a loan.
- The lender can ask for your ID proof, Address proof, and your Income proof as well.
- For your ID proof your Driving license, PAN Card, Passport, Aadhar Card, Employee ID issued by the Govt. of India will work.
- And if you are Self-employed then a Driving license, PAN Card, Passport, Sales Tax Registration Certificate will work.
- For your Address proof, Passport, Lease Agreement, Telephone Bill, Utility Bill, Bank Statement, and Aadhar Card will work.
- Address proof requirement for an employed person and a Self-employed person is the same.
- For the Income proof, you can submit your Latest 3 to 6 months salary slip and Form 16 of IT return also for an employed person.
- For a self-employed person, you can submit Income Tax returns of the last 2 years, attached with a Balance sheet and P&L A/C, Computation of income and if the ITR is audited then an audit report along with annexures can also be required.
- Above mentioned documents are just an example, not the exact document that you will need to secure the loan, the Finance executive will provide the exact names of the document that the lender will need to give you a loan.
3.Checking on interest rates: - Different lenders charge different interest rates, so it will be a wise move to get details of various banks and financial institution's interest rates before applying for a loan.
- The Interest charged is usually high for a used car loan as compared to the new car loan.
- The lenders can also charge you interest on Fixed interest rate or floating interest rate.
- Fixed Interest Rate: - It means that you will be paying the loan on fixed equal installments for the decided period. if in the future the interest rate gets increased or decreased your loan will not get affected. It also means that the interest will be calculated on the principal amount throughout the period without taking into consideration the amount paid through EMIs which reduces the principal amount.
- Floating Interest Rate: - Floating interest rates can change if in the future interest rates increases or decrease and the bank will notify the borrower if it will happen. When you pay the EMI the outstanding amount gets decreased and the next month's interest is counted only on that outstanding amount.
- Apart from that many car manufacturers also have in-house finance companies like TATA Capital, Maruti Car Finance, etc which provide quick and easy car loans.
3.Tenure of the loan: - The tenure of the loan is an important thing to decide. Generally, lenders provide 1 to 5 years or some lenders also provide a 1 to 7 years time period to repay the loan.
- The longer the loan tenure, the lesser the EMIs (in terms of amount), but interest for long period will ultimately make the loan costlier.
- The shorter the loan period, the larger the EMIs (in terms of amount), but interest for a shorter period will not make the loan much costlier.
- It is up to you for what period you want to acquire a loan based on your monthly expense and repayment capabilities.
4.Hidden Costs: - A loan comes with many hidden costs like Foreclosure charges, Bounce charges, Processing fees, Loan cancellation Charges, etc.
- Foreclosure charges: - if you wish to repay your loan before the loan tenure, the lender can charge you a prepayment fine or foreclosure fees which is different from lender to lender.
- Bounce charges: - If your Cheque or other payment mode doesn't work or get bounced, the lender can also charge you Bounce charges.
- Processing fees: - Processing fees can be a non-refundable fee that can be charged by the lender to verify your documents which can include technical and legal verification and hence it is not refundable even if the loan gets rejected.
- Cancellation Charges: - If you cancel the loan application, the lender can charge you Cancellation Charges for that also.
5.What is included: -If the amount getting Financed is the ex-showroom price or on-road price of the vehicle?
- Different lenders finance different amounts like 90 to 95 percent of the ex-showroom price of the vehicle and some even finance 100 percent as well.
- If the Insurance, RC charges, and GST are included or not or you will have to pay extra for them.
- All these things differ from lender to lender, so you need to make sure you choose the right one for you.
6.Refinancing option: - Through the Refinancing option, you can apply for another loan with a lesser interest rate in the future, which will be less costly and pay off your current loan. it is also known as car refinancing.
Conclusion: -
- You should check and compare various banks and financial institutions especially the in-house finance of the manufacturers.
- If your credit score is good then you must bargain for a less interest rate.
- Keep the loan tenure between 2 to 3 years, if not possible adjust it as per your requirement.
- Look for various schemes provided by financial institutions as some lenders can also provide for insurance coverage and other services.
- As the cost of the loan is determined by the principal amount, interest rate, and duration of the loan, keep them as low as possible.
- If you are in a good financial position try to pay some amount from your pocket and finance less amount for the vehicle as it will make the loan easy to pay.
- Don't forget to calculate your monthly EMIs through EMI Calculators available online.
Bonus tips: -
- Try purchasing your new car or used car during the festive season, as the lenders are more likely to waive off their processing fees and provide other attractive offers to encourage you to take their loan.
- Try purchasing an Electric vehicle as the government can provide tax exemption if you take the finance to buy an Electric vehicle, it will also save you from the rising fuel prices which are likely to rise even more in the near future, and as the government is also in favor of the Electric vehicles so you can get some other benefits from the government also.
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