To avail car loans in India, proof of steady income is the most deciding factor. After all, the bank or other lender wants to be assured that you have a steady stream of revenue so that you can repay the loan regularly. Does that mean it is not possible to avail an auto loan if you are unemployed?
Well, if you are curious to know the answer, continue reading this post, where we show you how to avail car loans when you don’t have a steady job.
Car Loan Eligibility in India
The actual car loan eligibility in India varies from one lender to another. Generally, speaking banks have stricter eligibility requirements compared to NBFCs and other digital lenders. The essential criteria for car loans in India are:
The applicant must be aged between 21 and 65 years
Must receive a steady income
The cut-off is around Rs. 3 lakhs for salaried applicants
Rs. 4 lakhs for self-employed individuals
Have a good credit score
Hold a stable occupation
Does that mean unemployed individuals – homemakers, job-seekers, and others cannot avail an auto loan from a bank or NBFC? The answer depends on your financial situation. Here, we list some ways to help you get a car loan when you are unemployed.
Tips for Unemployed Individuals to Get Car Loans in India
You may be currently taking a sabbatical from work, in-between jobs, on your maternity leave, or taking up a course to further your employment prospects – the reasons for unemployment are varied and mostly valid. However, banks and other lenders require you to show proof of income before approving your auto loan.
Here’s how you can secure a car loan, irrespective of your employment status:
Take a car loan against FD
It's one of the popular options for unemployed individuals to secure a car loan. If you hold a Fixed Deposit (FD) with the bank, you can submit the FD as collateral to avail of the loan. In this case, the lender treats it as an OD (Overdraft) on your FD and sanctions the loan. Note that if you hold a joint FD, then you need to get the written consent of the co-holder before you apply for a loan.
Take a car loan with a co-applicant
It's one of the easiest ways to get your car loan approved when you are unemployed. The co-signer must hold a stable job and have a steady income. In this case, the co-signer is acting as a guarantor or security for your car loan.
If you are unable to make the loan payments on time, the co-applicant is held responsible. So, make sure that you explain the situation clearly to the co-applicant before you get them on board.
Offer a large down payment
Paying a sizeable down payment for the car increases your chances of getting a car loan, even when you are unemployed. A substantial down payment reduces the loan amount significantly. A reduction in loan amount minimizes the risk of the lender, thereby making them approve your loan request.
Choose a loan against your existing car
If you currently own a car, then you can apply for a loan against your car. In this case, you pledge your old vehicle to act as collateral for your auto loan. The tenure for loans against vehicles ranges from 1 to 3 years, and the interest ranges from 14% per annum and above. When you apply for a loan against your existing car, you can get up to 150% of the market value of your current vehicle (the one you're offering as collateral).
Take a car loan against property
It's similar to a car loan against FD. The one difference here is that you're providing your property as collateral. However, note that if you're unable to repay the loan EMIs on time, the lender can claim ownership of your property as repayment.
Take a car loan against gold
Just like a car loan against property, here you pledge your gold ornaments as collateral. The lender can sell the pledged ornaments, if you’re unable to make the repayments on time.
Provide proof of an alternative source of income
Most lenders approve your vehicle loan application if you can provide an alternative source of income. It can be income from a fixed deposit, rental income, disability pension, retirement pension, and so on.
When you provide an alternative source of income, the lender is assured that you can repay the loan EMIs on time, which improves the chances of approving your loan.
Having a good credit score can tip the scales in your favour
Besides your income, the lender looks at your credit score and credit history to determine your creditworthiness – your ability to repay the loan. If you have a high credit score and a positive credit history with no negative consequences like outstanding dues, bankruptcy filings, then the lender is more likely to approve your loan application.
Here are a few tips to improve your credit score:
- Pay your credit card bills and loan EMIs on time.
Reduce your debt-to-income ratio.
Maintain the right balance between secured loans (home loans) and unsecured loans (personal loans).
Don’t pay only the minimum amount on your credit card balance. Instead, pay it in full.
Multiple loan applications, loan rejections, delayed or skipped EMI payments, pre-closing loans all hurt your credit score. So, make sure to work on your credit score before approaching a lender for a car loan.
Show proof of stable residency
When applying for a car loan, you have to submit several KYC documents like – identity proof, age proof, income proof and address proof. While unemployed, having a stable residency proof increases your chances of securing the loan. It’s because when you have stayed in the same address for an extended number of years, the lender sees you less of a flight risk and is more likely to approve your loan request.
Choose a smaller car
Opting for a smaller car reduces the overall loan amount, which, in turn, decreases the lender's risk.
Additional Reading: Loans for Unemployed
What to do if none of these tips work?
If none of these tips work, you can go for a low-priced second-hand car. Several organised dealerships in India sell low-cost used vehicles. The sale price is low, so you can easily pay it out of pocket.
Alternatively, if you've decided on a new car, you can request an employed friend or family member to get the loan in his/her name. You then make the payments to the friend/family member, and he/she pays the bank on your behalf.
Where to apply for a car loan when you are unemployed?
You can apply with all banks and NBFCs that offer regular car loans. Do your research and look for lenders who have relaxed eligibility terms – usually NBFCs and other new-age lenders.
Availing a Car Loan when Unemployed is Difficult but Not Impossible
Availing a car loan when you're unemployed takes time and research. Be prepared to pay a higher down payment and a higher interest rate when you don't have any employment proof.
Make sure to explain the reason for your unemployment to the loan manager and provide him/her with proof of an alternative source of income to get your loan sanctioned.