You walk into a car showroom to buy a car. Let’s imagine, you only have half the amount of the value of the car. The car dealer may now ask if you would like to go for car financing for the remaining amount which can be repaid month-on-month at an agreed interest rate and tenure. The car financing is provided by banks, NBFCs and other private lenders. In some cases, the manufacturers themselves provide car financing for the buyer.
The car financing can also be arranged even before you contact the car dealer to purchase the car. Based on your eligibility such as income, credit score and employer, the car loan amount is determined by the lender. In car financing, the interest rates are fixed based on your creditworthiness. If you have a good credit score, you have higher chances of bagging a low interest car loan.
The financial institutions do not provide financing for 100% of the value of the car. You need to make a certain percentage of down payment. Usually, the lenders provide up to 85% of the value of the car. Before applying for a car financing, it is essential to check the amount that you are likely to qualify for. It can help you gather the down payment beforehand.
You can also avail car financing for pre-owned cars. However, the maximum amount will be lower than new car financing.