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Owning a car used to be a big deal in the past. Till about a decade ago, it was a long-drawn process with much documentation procedure. Today, within days, one can book a car and drive it back home too! It has become easy to avail a car loan, as many financial institutions offer convenient terms and conditions. Most leading banks sanction car loans within a day or two, making it very easy to buy your favourite four-wheeler in no time. The main criteria to be noted during availing a car loan is ensuring your car loan eligibility.
Car finance or car loan enables the borrower to acquire a car with an arrangement to fund the purchase by any financial institutions. The borrower will repay the amount at regular intervals (typically on a monthly basis) called the equated monthly instalments (EMI) over a pre-determined period. The EMI would include the repayment of principal and interest. A car loan typically does not require surety or any additional guarantor. The car bought against the fund will be mortgaged with the financial institution which extends the loan. Any non-payment or lapse in repayment of the loan could potentially lead to the seizure of the car.
While it is easy to apply for a car loan, it is also important to check your car loan eligibility. This helps in avoiding any hassles in the whole process and reduces your chance of loan rejection. There are many factors that affect the eligibility of a car loan.
Credit score – Your individual credit score is very much considered by the bank before issuing a car loan. This shows your creditworthiness and correct sense of your financial condition. If your credit score is high, it will be easy for you to get a car loan. If your score is low, chances are high that it will get rejected.
Age – There is a minimum age requirement of 18 to 21 years to apply for a car loan with most banks. Also, it is advisable to close the loan payment before 65 years. Banks prefer applicants who have a longer working period, i.e. individuals with a higher number of working years, as their financial condition will be strong.
Income level – The total loan amount that will be made available to you will depend on your income level. If the income level is less than the defined threshold limit, you can include your spouse or any other earning member of your family as a co-applicant. This will support your application strongly and qualify your application against the criteria of the loan.
Debt – The debt-to-income ratio is considered by the bank when you apply for a loan. If you are currently paying off another loan, you should completely close it, as it may become a hindrance in getting your car loan. Existing debts must be cleared out as much as possible to increase your chances of getting the loan.
If you are having trouble in meeting the basic eligibility criteria for a car loan, it can be improved in many ways:
Repay existing debts – You must immediately clear your existing dues or any outstanding payments. This will improve your debt-to-income ratio and increase your eligibility for a car loan. Debt management is crucial when you are seeking financial assistance.
Bring in Co-applicants – When you need to show a stronger income source, it is wise to include an immediate family member who is earning as a co-applicant in your car loan application. This makes the financial base strong and banks will be convinced of your repayment capabilities. The co-applicant can be your wife, husband, father, mother or siblings. It is not mandatory to buy the car in their name.
Increase your credit score – One of the most important parameters considered by the bank while sanctioning a car loan is the applicant’s credit score. This shows the true picture of the applicant’s financial condition. If you have any pending credit card bill or debts, it must be closed out to better your credit score. It is not suggested to completely discard your card as it will affect your available credit limit for day to day activities. However, it is important to maintain the balance with your revolving debt to gain a good credit score.
A loan is a huge responsibility as it is a long-term commitment. While purchasing a car with cash has a lot of advantage, a car loan too has its own benefits. Following are some of the benefits on a car loan.
After you have determined your budget, you can apply for a car loan to buy your favourite four-wheeler. You can either apply online or visit the nearby bank branch or car showroom.
Online: It is easy and simple- you can just visit the official website of the lender you wish to apply for the loan. You can enter your personal and contact details at the website and an executive from the bank will contact you to guide you through the process. After you have decided the vehicle you want to buy, the lender may request you to submit the documents to be processed for approval. Once, you have been approved and you have acknowledged the charges and rates, your car loan amount will be disbursed.
Visiting the branch: You can just walk-in to any nearby branch of a bank or the lender where you maintain a savings account. You can fill up the application form and submit it along with the documents to be processed for approval. The loan amount will be disbursed once you have been approved for the loan.
Car dealers: The car dealers who operate the showroom will have tie-ups with certain lenders. You can apply then and there at the showroom for the loan which can reduce the loan procedure. You can drive your car home once the loan has been approved.
Manufacturers: In some cases, the manufacturers themselves provide loan to the car buyers at better rates. You can apply for the car loan at the showroom itself and purchase the vehicle.
The below documents are required to be submitted by the car loan borrower. The application will be processed based on eligibility criteria and the disbursement or sanction will be processed as required.
1. How can I get a low interest rate on a car loan?
A low interest rate on a car loan is possible with a good credit profile and consistent income. Some banks provide low interest loans to individuals based on their relationship with the bank.
2. What is the maximum age limit to apply for a car loan?
The maximum age limit generally ranges between 60 and 70 years. However, it varies from lender to lender. It is advisable, you close the loan before reaching 65 years of age.
3. Can I make part-prepayment on the car loan?
Part-prepayment option is available only with few lenders. You can choose the lender who offers such facility. You might also be charged a certain percentage of the loan amount for making prepayment or part-prepayment.
4. How to check my eligibility for a car loan?
Checking your eligibility for a car loan is easy. You can just visit the official website of any lender and enter your personal and income details to check your eligibility. Checking eligibility helps avoiding a loan rejection.
5. What is the maximum repayment period on a car loan?
The maximum repayment period on a car loan is up to 84 months. However, it may vary for pre-owned car loans.
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