Factors that may affect your car loan interest rate
Banks in India offer instant car loans at attractive interest rates in order to increase the purchasing power of the consumers. Whether you have your eye on a new car or used car, you have easy access to funds as most banks offer auto loans for almost all makes and models of cars available on the market. Choose a bank that offers car loans at a low interest rate, flexible loan tenure, and a low processing charge. You can get up to 100% financing for your dream car.
Here is how you can make your car loan application process simple and easy. Almost everything that you want is at the tip of your fingers, thanks largely to technology. So, when you are looking for a new or used car loan, consider the benefits of doing it online. You can find out your car loan eligibility, compare various car loan offers, and get an instant quote. What’s more, you can also calculate the cost of your loan using the online car loan EMI calculator.
How can you get a low interest car loan?
The higher the interest rate, the higher is the cost of your car loan. There are ways in which one can get a lower interest rate car loan. For this, it is important to understand the factors affecting your car loan interest rate:
● Maintain a good credit score: Whether it is a personal loan or a car loan, your credit score and credit history play a major part in determining the approval of your loan. If you have a good credit score of 750 or above, then your chances of car loan approval are higher. If you have a bad credit score, it indicates your inability to repay the loan. Hence, banks prefer to give loans to individuals with a good credit score. Also, with a good credit score, you have the opportunity to negotiate for a lower interest rate with the bank.
● Higher the down-payment, the lower the cost of your car loan: If you have a sudden inflow of cash or have been saving up to buy a car, you can use the available funds as a down-payment and apply for a car loan to pay for the rest. This brings down the principal loan amount you need to borrow to pay for the car.
● Steady income and type of occupation: When checking your car loan eligibility, in addition to credit score, your income level is also taken into account. Banks prefer individuals with a steady income and a stable occupation as it shows an applicant’s capability to repay the loan. The probability of defaulting on a car loan is lower when the applicant has a steady income every month to pay EMIs.
● Low Debt-to-Income ratio: Calculating Equated Monthly Installments (EMI) for your car loan will help you decide on the loan amount and tenure. Enter the chosen loan amount, loan tenure, interest rate, and processing fee into the car loan EMI calculator. The tool will give you instant results including an amortisation table that consists of the monthly EMI payments, gross payment in interests, and the monthly reduction of the principal loan amount. It is advisable to have a low debt-to-income ratio as it indicates your capability to make EMI payments each month without fail. Your EMIs shouldn’t exceed 50% of your salary.
● Choose your car loan tenure carefully: The longer your loan tenure, the lower your interest rate. However, with a long loan tenure, you end up paying more in interest over the years. A shorter loan tenure means a higher interest rate. Understandably, it can be difficult to choose the right loan tenure. To make it easy, it is important to calculate the EMI of your car loan. Calculate the total interest payment for the chosen loan tenure and settle for one wherein your total interest payment is less.
● Age and model of the car: With a car loan, the vehicle is considered a collateral for the period of the loan tenure. In the case of defaulting on a loan, the bank will hold onto the car to make up for the outstanding dues. That is why, banks take the age and model of the car into account when determining the interest rate. Keep in mind, modern cars from a reputable manufacturer have a higher resale value than older models. Used or pre-owned car loans have a higher interest rate than new car loans. This is because old cars depreciate with age and usage.
By going paperless, you can get better offers on car loans online as you are eliminating the involvement of an agent who works on commission. Most banks approve car loans within a day. Apply car loan online to enjoy faster approvals and disbursement of funds. Having said that, don’t apply for multiple loans in a short period of time in order to avoid a negative impact on your credit score. A good credit score, a steady income, and a flexible loan tenure can help you get a lower interest rate car loan.