What is car loan?
It is a loan which allows a buyer to pay for the car through monthly installments rather than making a payment one time. The buyer has to pay part of the price as down payment while rest will be financed by the lender.
Benefits of car loan
- Makes easy to buy car: – As many banks provide up to 100% finance on ex-showroom price, you don’t have to wait long to buy your dream car.
- Flexibility to choose the tenure: – Banks offer car loan for tenure of up to 7 year. You have the flexibility to choose the tenure as per your convenience.
- Loan for buying used car: – Many banks offer loan on used car these days. Although the interest rate will be higher than the interest rate on new car loan and the loan-to-value (LTV) ratio will be lower than the new car loan.
- Interest rate can be negotiated: – Unlike home loan in case of car loan you have the flexibility to negotiate the interest rate with your lender if you have a good credit score and have good relationships with the bank.
- No collateral required: – You don’t have to put any collateral to avail the car loan as your vehicle will act as a security with the bank and in case you fail to make the payment, the bank has the rights to seize the vehicle and sell it off to recover the funds.
- Flexibility to choose the payment mode:– You can choose to pay through post-dated cheques or use the auto debit facility where your equated monthly installments (EMIs) will be automatically deducted from your bank account.
- Flexibility to choose the fixed or floating interest rate option: – You can choose the type of interest rate whether fixed or floating. The interest rate will depend on the type of interest rate you are choosing.
What is car refinance loan?
Car Refinance Loan is a secured loan where you pledge the papers of your car with the lender in order to get money. Just like personal loan there are no restrictions on the end use of funds in case of a car refinance loan. Although the processing charges are relatively lower the loan amount is generally up to 60-805 of the actual car value. Also, the paper work will be extensive.
Documents required for taking a car loan
You will need the following documents while applying your car loan
- Duly filled application form
- Know your customer documents – any one identity proof (Voter Id, passport, ration card) and any one address proof (electricity bill, phone bill, passport)
- Income proof- latest salary slip
- At times bank may also ask for employment stability proof
Factors that impact your car loan interest rate
- It will depend on your credit score. You can negotiate with your lender for a lower interest rate if you have a high credit score.
- The tenure of the car loan will not only decide your total interest outgo but the interest rate. Generally banks charges higher interest rate in shorter tenure loan and lower interest rate on longer tenure of loan.
- Car age and model will also one of the factors that is taken into consideration while deciding the car loan interest rates.