During the festive season, most of us in India want to purchase a car for our family or for ourselves. The cost of a new car varies from Rs. 3.50 lakh to Rs. 1.50 crore and more. Most of us want a car loan to purchase our dream car. Therefore, before going to avail a car loan from any bank, we should know some facts about the car loan so that we may get the best car loan. We calculate the EMI using car loan EMI calculator. Here I am providing the pointwise facts.
Table of Contents
Car Loan EMI calculator:
Types of Car Loans (New, Used, Refinancing):
There are various types of car loans, including loans for new and used cars, and refinancing options.
Car loan for new Car:
To purchase new car all banks are providing loan.
Car loan for used cars:
To purchase old car, some banks are providing car loan like ICICI bank, HDFC bank and others
Refinancing of car:
Refinancing of car is the process of switching your existing car loan with a new car loan from a different lender. Even when a loan is already in progress, car loan refinancing can help you access favorable repayment arrangements. You will receive a loan with new features, advantages, and terms if you decide to opt for refinancing. Benefits of car loan refinancing are lower interest rates, modification in loan tenure and may be adding of new co-applicant. Before switching the existing car loan to other lender, we should consider about prepayment charges, depreciation in the value of your car.
How Car Loan Interest Rates Work:
Before taking car loan from any lender, we should consider about the best interest rates. Rate of interest of car loan depend on CIBIL score of any borrower i.e., higher the CIBIL Score, lower the ROI of car loan. CIBIL Score are provided by an autonomous body like trans union, Equifax. In short, we can say that CIBIL score is a score from 0 to 900 or -1 that is given by the autonomous body depending upon the previous credit history of the borrower. If a person has never availed any credit facility, CIBIL score of that person will be -1 (i.e., no credit history). Most of the bank providing car loan to those people whose CIBIL score is at least 700 plus or -1. Your CIBIL Score is based on your loan repayment behavior, length of credit history, credit mix and utilization. At present there are two type of interest rate provided by most of lender.
Fixed Interest Rate:
In this type of interest rate the Rate of interest of car loan is constant for the entire tenure of car loan i.e., in this type of car loan ROI never change during the tenure of car loan.
Floating Interest Rate:
This type of car loan depends on the RBI repo rate and changes according to the current repo rate. If RBI increases the repo rate, the ROI of a car loan increases, and if RBI decreases the repo rate, the ROI of a car loan decreases.
In the above two interest rate there are some pros and cons. In fixed Interest rate most of the bank impose lock in period and if we want to close our car loan in this lock in period, the lender imposes penal interest of approximately 2%. In floating interest rates, most public sector banks don’t impose any lock in period, pre-payment charges, or pre-closure charges.
Factors Affecting Car Loan Eligibility:
The factors lenders consider when approving car loans are credit score (as discussed above), income, and down payments.
- Most lenders finance 90% of the on-road price of any car, which includes the car price, RTO registration fee, and insurance premium.
- Most lenders only consider 60% of the income of any person for the total deduction, including the EMI of the loan under consideration.
Importance of Down Payments:
A down payment in the context of car loans refers to an initial, upfront payment that a borrower makes when purchasing a car. It’s a significant part of the overall cost of the vehicle, and it can have several important implications for the car loan like 1. Reducing the Loan Amount, 2. Lower Monthly Payments, 3. Interest Savings
Pros and Cons of Longer and Shorter Loan Terms:
If we take a car loan for longer terms/tenure, the EMI of the loan comes small as compared to shorter loan terms/tenure. The cons of longer loan terms are that we have to pay more interest on the entire period of loan as compared to shorter loan terms.
Tips for Choosing the Right Car Loan:
While we are going for a car loan to any lender we should consider about the following: –
- Lowest Interest Rates & EMI
- Longest Repayment Tenure (7 years)
- Financing on ‘On-Road price’, On-Road price includes Registration & Insurance.
- Interest calculated on Daily Reducing Balance;
- No prepayment charges
- No foreclosure charges
- Financing Upto 90% of ‘On-road Price’
- GCC/GCLI (Group Credit Life Insurance) is very beneficial. GCLI/GCC has one time premium, and it is life insurance of borrower for the loan. if the borrower died during the loan tenure, in such case the GCC/GCLI provider company repay the loan on behalf of the borrower.
- Interest Rate
- Processing fee
Required documents for car loan:
- Application form including Asset and Liability, legal heirs related details
- KYC documents like aadhar card, PAN card, Voter id, driving licence.
- last 2 years FORM16/ITR
- Employment document like job ID card, 3-month latest salary slip for salaried person
- Business document like Udyam registration, GST certificate, last one year GST returns, Partnership deed (if applicable), MOA&AOA (if company)
- Last one year salary account statement ( for salaried person)
- Last one year saving account statement with current account statement for business related person.
- Quotation of Vehicle.