In the past, it was enormous to own a car. Until about ten years ago, it was a long process with a lot of paperwork. In a couple of days you can book a car and drive it home! A car loan has been made available easily by the flexible terms provided by many financial institutions. Many leading banks borrow their cars within a few days, so that your new 4-wheeler can be easily purchased. The most important conditions for a car loan are that your car loan is legitimate.
HOW DOES A CAR LOAN WORK?
Car financing or car loan allows the purchaser to purchase a car with an agreement with some financial institution to finance the acquisition. In a fixed duration, the Employer shall reimburse the sum at regular intervals (usually weekly) referred to as the Equated Monthly Payments (EMI). In the EMI, principal and interest will be reimbursed. Normally no guarantee or additional guarantor is needed for a car loan. The car purchased from the fund will be mortgaged by the financial body that extends the loan. Any default or inability to repay the loan could lead to the car seizure.
WHAT ARE THE FACTORS IMPACTING THE ELIGIBILITY OF A CAR LOAN?
While it is simple to apply for a car loan, your car loan eligibility should also be reviewed. This helps prevent trouble in the entire process and reduces the chances of rejecting loans. The eligibility of a car loan has several variables.
- Credit score: Before you request a car loan, the bank considers your individual credit score very carefully. This shows your reputation and your financial status correctly. It would be easy for you to secure a car loan if your credit is high. If your score is bad, you will probably be fired.
- Age: A minimum age for applicants for a car loan for most banks is 18 to 21 years. In addition, the loan payment should be closed within 65 years. Banks favour applicants who work longer, i.e. people with more years of work, as their financial conditions are high.
- Income level: The overall amount of the loan you earn will depend on your revenue level. You will include your spouse or any other income member of your family as co-applicants if the income level is lower than the specified threshold limit. This strongly supports your application and qualifies your request according to the loan requirements.
- Debt: When you apply for a loan, the debt/income ratio is taken into account by the Bank. If you pay another loan at the moment, you can close it entirely as it could become an obstacle to securing your car loan. Current debts should be eliminated to maximise the chances of securing the loan as much as possible.
HOW TO IMPROVE YOUR ELIGIBILITY FOR A CAR 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: Your current duties or pending payments must be immediately cleared. That will increase your debt-to-earnings ratio and boost your car loan eligibility. When you need financial aid, debt management is key.
- Bring in Co-applicants: If you need a stronger source of income you should have an immediate family member who is a co-applicant in your application for a car loan. This strengthens the financial base and will persuade banks to reimburse. Your wife, husband, dad, mother or siblings may be the applicant. The car should not be bought on your behalf.
- Increase your credit score: The credit rating of the borrower is one of the most significant parameters the bank takes into account when sanctions a car loan. This reflects the true picture of the financial position of the claimant. If you have an outstanding bill or loans on the credit card, your credit ratings need to be turned off. It is not recommended that you discard your card fully as this will affect your credit limit for everyday work. However, to get a good credit score, it is necessary to preserve the balance of your revolving debt.
ADVANTAGES OF A CAR LOAN
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.
- When you run short of funds to purchase your favorite four-wheeler, a car loan can fund the extra requirement. You can drive home your favourite model with a car loan.
- High-end model cars can be easily purchased with a car loan by making a good amount of down payment.
- If you have not borrowed in the past, it is unlikely that you will have a credit score. By taking a car loan, you are introduced into the credit world. You can start building your credit score which can be helpful in term of availing future credit at better rates.
- A car loan helps you avoid the hassle of travelling in a congested public transport and help you reach your workplace at ease.
HOW CAN YOU APPLY FOR 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: The loan is quick and secure, you can only visit the lender’s official web site. You can enter your personal and contact information at the website and an executive from the bank will contact you to help you through the process. The lender may ask you to apply the documents to be processed for approval after you have agreed to buy the vehicle. After the approval has been granted and the charges and rates have been accepted, the balance of the car loan is paid off.
- Visiting the branch: You should go to any branch near the bank or the creditor where you hold a savings account. You should fill in and apply the application form along with the documentation for approval. After you have approved the loan, the loan amount is paid.
- Car dealers: There will be relations between the car dealers who run the showroom and some lenders. You may then request a loan to minimise the credit process at the showroom. After the loan has been accepted, you can drive your car home.
- 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.
DOCUMENTS REQUIRED FOR A CAR LOAN
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.
- Duly filled-in application form.
- Passport size photos.
- ID Proof (Birth certificate, driver’s license, passport, voter ID, Aadhaar card, etc.).
- Address Proof: Aadhar card, passport, telephone or electricity bill, etc.
- Proof of Income.
- Bank statement of last 6 months.
- Salary Slip or Form 16 (For salaried individuals)
- Income tax returns (For self-employed individuals)
- Additional documents or guarantees may be required according to the loan conditions desired. If a guarantor is required, the same documents must be submitted by your guarantor.