A loan for buying a vehicle is known as an automobile or auto loan. The vehicle bought with the loan money is kept as a promise by the lender until the total amount of the loan has been paid with interest. That’s called the bank’s or finance company’s hypothecation. If the customer fails to pay the loan, the lender shall keep the mortgaged vehicle for its dues. When the entire amount is repaid, the ownership records will be updated to reflect the customer’s full ownership.
WHAT KIND OF VEHICLES CAN YOU GET WITH AN AUTO LOAN?
An auto loan is used for the purchasing of new vehicles, used cars, and a two-wheeler loan. It may also be used for the purchasing of commercial vehicles such as trucks or buses when known as commercial vehicle loans.
ELIGIBILITY FOR AUTO LOAN
In contrast to a housing loan, the loan approval process for an auto loan is quicker and faster. The prime concern of the lenders is your income and credit history. You want to know if you have the financial capital to repay your loan and if, in the past, you have shown a history of responsible repayment. Even to apply for an auto loan you need to be at least 21 years old.
Specifically, lenders look at:
- Employment profile and income: Lenders would like to know if you have stable jobs, profession, business, and stable monthly profits, which guarantee the repayment of loans over the lifetime of the loan. In the past, if you have repeatedly changed jobs, creditors are cautious to accept the request. You’re unsure whether you’ll be able to make your monthly payments by getting an ongoing inflow of money. It is an excellent idea to verify whether you apply for a loan for at least one year with the same employer. Some lenders also demand that the same employer is eligible for a loan for at least a year of continuous work.
- Current EMI payments: Overall, lenders don’t want to surpass a certain amount of their monthly revenues by your whole EMI burden over all your loans. If your. If your overall monthly EMI burden reaches 50-60% of your revenue, for instance, lenders would be in question if you can spare more money to repay additional auto loans. You are likely to refuse your loan. So make sure that you don’t have too much of your total EMI outflow when applying for a loan. If it is high, then try and pay off some of the smaller loans so that your overall EMI burden decreases and frees up some of your income for repayments on your auto loan.
- Credit score: Like any lending (except maybe a gold loan), the lenders pay careful attention to your past and current credit health. In general, lenders appear to check for a credit score of 750 or more before determining whether to proceed in the next step. If your score is less than 750, your submission is likely to be dismissed. Lenders interpret a score below -750 as suggesting credit discipline issues and may not be able to apply. Therefore you need to ensure that before you apply for an auto loan, you get a decent credit score to prevent a denial.
- Credit report: Although your loan score reflects your current wellbeing, the loan report reflects your previous lending behavior. Even if today’s credit score is sufficient, lenders can review your credit report to gain an insight into how you used to pay. In the past, lenders will prefer to refuse the application if they have a high percentage of late or missed payments because they don’t want to run the risk that this default will repeat itself.