A Car Loan, also called an Auto Loan is a service under which lenders such as banks and NBFCs (Non-Banking Financial Companies) agree to give credit to the borrower, with the primary purpose being to allow the customer to buy a car.
The advantages of taking a Car Loan are:
- Ability to buy a brand-new or second-hand car even if the total amount is not paid at once
- Fast approval
- The choice among fixed or floating rate interest
- Facility to choose the loan tenure of up to 7 years
- There is no need for collateral because the vehicle itself is the security.
- You can decide the payment method at your convenience.
If you want to take a loan, then it is advisable to check many offers from many banks. If some offer low interest on a loan, some may offer small EMIs, with others may discount the processing fee. However if many such offers confuse you. Here’s a simplified example:
Loans are usually 3-5 years, but some lending institutions or banks can also give up to 7 years. If the loan repayment tenure is longer, its EMI will be smaller, making you find the car more affordable, but you pay more in the form of interest.
You must not forget that a car is a depreciating asset, so it may not be sensible to take a bigger loan for it, but you can take a car loan for a short tenure.
What is the eligibility criteria to apply for a new car loan?
Commonly, the bank or lender institution will require to study the following to specify your new car loan eligibility:
- Your credit history
- Your income
- Your age and citizenship status
- Other debts and monthly financial obligations
- Your employment status
Is it necessary to take insurance while purchasing a new car?
Yes. Car insurance is compulsory in case of any accidental calamity. The government has made third-party insurance mandatory for all car and two-wheeler companies. You can get more details on this from your car dealer.
How can you know your credit score?
Before taking a loan, you can know your credit score by visiting the websites for credit information companies such as CIBIL (www.cibil.com), here you will need to fill in an online form to receive your credit score. Generally, you can receive a free credit score once in 12 months, however a charge of approximately 550 rupees would be applicable for additional requests.
What is a Car Loan EMI Calculator?
The Car Loan EMI Calculator tells you in a quick and easy way what the EMIs you need to pay at regular intervals will amount to if you take a car loan. Taking a car loan is a great financial option for those who want to get a car but do not want to spend all their money on it in one go or do not have a lump sum amount to buy it.
How to use Car Loan EMI Calculator?
Simply key in the amount, rate, and tenure for which you aim to take the car loan, the Car Loan EMI Calculator will automatically reveal the approximate EMI’s acceptable for the loan tenure.
Also, refer to the amortization schedule which reveals a break-up of the interest and principal paid back each year during the loan tenure.
What do you get from the EMI calculation?
EMI calculation gives you an accurate idea of how much money you need to set aside to pay as EMI every month after taking the loan. In this way, you can make a conscious decision to take a loan. That is why if you use the EMI calculator to know how much you will have to withdraw every month to buy a car, you can plan it well.
Why is it important to check EMI?
Knowing your EMI out-go helps you:
- Check your loan taking ability
- Check total loan amount and tenure.
- Plan loan repayment
- Go in for prepayment of part-payment for your loan
While you do this, remember to check additional conditions that may apply to the amount of the car loan. For example, some lending companies offer loans for the total ex-showroom value of the car, while others provide loans up to 80%. That is, you will have to pay the remaining 20 percent amount yourself. Apart from this, companies also charge processing fees and some other charges like prepayment or documentation.