Car loans have made it easier and more affordable to buy a four-wheeler in India. According to a report in the Economic Times, the auto finance market in India has 74% finance penetration and is expected to double to more than INR 160,000 crore by 2022, as compared to 2014-15. Experts expect the Indian automotive market to grow at an impressive CAGR of 13% by value.
What You Should Know Before you apply for a Car Loan?
There are several small and large aspects of vehicle loans that you will need to know beforehand. This article will help you to avoid getting stuck with an unwanted and unaffordable loan repayment scheme. The information provided below is meant to help applicants determine their financial eligibility and discover the best source for car finance online.
To make it easier to apply for a car loan, we have listed the things you should know before applying.
1. Down Payment
When it comes to making the down payment for a car, many applicants make the basic mistake of choosing to pay a small amount. This might seem like a money-saving technique initially but it has adverse effects in the long run.
Small down payments can adversely affect the car loan tenure, the interest rates and your EMIs. Hence, it is highly advised to make the down payment as much as you can afford to, rather than the minimum down payment amount quoted by the bank or finance company.
This way, you can effectively lower the car loan quantum and ensure that you save money on the interest payable for the loan throughout its tenure. Making a large down payment may seem unfeasible at first but it has incredibly impressive benefits in the long term. Just remember one thing that you need to maintain a good credit score to apply for a car loan.
2. EMIs and Interest Rates
Before applying, you need to get a clear idea of car loan interest rates which will set your regular EMI amount for repayment. Try to avoid taking a low-interest rate loan because you eventually end up paying more by the end of the loan tenure. Instead, you can compare the interest rates for different banks and finance companies using any of the easy-to-use online EMI calculators.
This step is extremely important to consider before applying for a car loan because it gives you better control not only over the regular EMI amount but also helps you to choose the best-suited term plan for the loan.
3. Loan Tenure
Finance experts expressly advise choosing short-tenured loans over those with a longer tenure. A good credit score can help you to get lower interest on loans but longer tenure can cause a higher interest charge on the total loan amount. The reason behind this is that the longer the loan tenure is the larger the amount you will end up paying as interest by the end of your loan tenure.
A short-tenured car loan may seem like a strain on your budget but comparatively, it helps you to save significantly on interest rates.
4. Debt Consolidation
If you have multiple loans currently then you can even choose to consolidate all your loans and thus make loan management easier and more efficient. Consolidation allows you to combine all your loans together and pay a single EMI as repayment every month.
When you have all your loans combined into a single, total amount then it saves you the time and effort otherwise required to manage multiple loan repayments simultaneously.
5. Car Loan Transfer
This is yet another step to consider before applying for a car loan. In case you are unable to meet the regular EMIs, then you can request the lender bank or finance company to restructure your loan. Restructuring a loan means altering the EMIs, interest rates, and tenure to fit your repayment capacity.
However, restructuring the loan may cause a dip in your credit score (CIBIL score). One can get a loan with bad credit but in this scenario, you must pay the higher interest rate.
On the other hand, choosing to transfer your car finance to another bank or finance company is a better option. This way, you can get a lower interest rate on your outstanding car loan principal.
Before applying for car loans, it is extremely important to keep two things in mind. First, make sure that you fulfill the eligibility criteria for a loan application. Second, ensure to choose the EMI plan which is affordable and will not be a strain on your monthly or annual budget.