How does Car Loan Work: Car Loan Process in India

How does Car Loan Work

January 31, 2022 By: sonimoney0 comments

Car Loan Process: As different banks have different car loan processes, here are a few simple steps on how to get a loan for car. Now you can compare and choose the best loan with your preferred bank to apply for the best loans.

Obtaining a car loan is simple and can be completed in a few simple steps. Almost all banks and lenders now allow you to apply online and without submitting a paper application for a loan

The basic procedure for getting a car loan is the same, regardless of which bank you go to. The first step in obtaining a loan is to decide on the brand and model of the vehicle you want to buy. The next step is to determine your loan eligibility. You can do so by going to the bank’s website and seeing if you meet the eligibility requirements to apply for a loan.

The next big step is to figure out how much money you’ll need for a loan. It will be determined by your current financial situation, the length of time you want the loan to last, and the interest rate.

You can use the EMI calculators on bank websites to figure out how much you want to borrow and how long you want to pay it back.

You can start the application process once you’ve decided on a car model, a bank, and a loan amount and term. You can apply in person at a branch or online at the bank’s website.

You will be required to provide proof of income, age, identity, and address. Some banks will approve your loan in a matter of seconds.

For a decade, cars loan have been one of the most popular financial products in India, and the trend of taking out cars loan is growing by leaps and bounds. In India, several financial firms and private sector banks are focusing on the auto loan sector to generate revenue in the form of interest.

Car manufacturers, in collaboration with auto loan providers, are launching a slew of customized offers to entice customers to take out loans at various interest rates.

Buying a car has become a cakewalk, even though there are already a lot of cars in the market and many more on the way. There are a variety of options to choose from, ranging from budget-friendly cars to luxury sedans. As a result, there are a variety of options available these days for people looking to purchase new cars at a reasonable price.

Government employees pay lower interest rates, depending on the loan amount and other important factors. The interest rate on loans is determined by several factors, including the loan amount, vehicle type, and the borrower’s credit history, among others.

Car Loan Approval Process

Car loan applications are processed instantly in this day and age of the Internet. It is not the bank’s decision to begin the loan process if you apply for a car loan online or offline and submit all required documents.

At the bank’s end, the documents will be verified, and the applicant’s credit score will be checked. The bank will also determine whether or not the applicant is qualified for the loan. It only takes a few seconds to complete this process.

The bank approves the loan immediately if the applicant is found to be eligible. Nowadays, most banks approve loans almost instantly. Before you apply, make sure you’re eligible for the loan.

Within seconds of the loan being approved, the funds are transferred directly to the applicant’s account. As soon as funds are credited to your account, you can purchase the car.

A loan against your car can provide you with quick cash when you need it most. If you qualify for one of these loans, the funds are transferred to your account almost immediately. What you’re doing is using your current car as a security deposit to get money for a new car or an emergency.

What are the features of a car loan?

Understanding how a car loan works can help you choose a suitable loan offer. Here are the important features of a loan:

Car loan amount: Banks will lend up to 85-100 percent of the car’s on-road/ex-showroom price. The cost of your car loan will be lower if you make a large down payment on your chosen vehicle.
Car loan tenure: You can choose between a short or long-termloan , with terms ranging from one to seven years. A short loan tenure means you’ll pay off your loan quickly but with high EMIs, whereas a long loan tenure means you’ll pay off your loan slowly but with higher interest payments. It’s a good idea to use an online car loan EMI calculator tool to choose a suitable car loan tenure to save money on interest payments.
Car loan interest rate: To pay off your loan, you must pay interest on the principal loan amount every month for the duration of the loan. A cars loan interest rate will vary depending on which bank you choose. Visit a third-party website to compare car loan offers from major banks and select the one with the lowest interest rate.
Car loan EMI: Equated Monthly Installments (EMIs) are used to repay a loan to the bank (EMIs). Use the online car loan EMI calculator, which is available for free on the bank’s website or a reputable third-party website, to get instant and accurate EMI results. The calculator is simple to use; simply enter the loan amount, interest rate, loan tenure, and processing fee into the calculator and press the ‘Calculate’ button.

An amortization table will be provided to you as a periodic loan repayment schedule. Your EMIs, outstanding dues after each EMI payment, interest payments, and so on will be listed in the table. You can use an EMI calculator to figure out how much your loan will cost you each month.

Processing fee: To process your loan, banks charge a processing fee, which is a small percentage of the principal loan amount. The processing fee will be deducted from the loan amount when it is disbursed to your bank account. As a special offer, some banks waive the processing fee.
Prepayment/Pre closure: After 12 EMI payments, banks allow borrowers to prepay a portion of their loan. You will have to pay a penalty fee, which is a percentage of the prepayment amount, to make this prepayment. You can also choose to pay off the loan in full before the end of the loan term, which is known as pre closure. To pre close a loan, banks charge a pre closure fee, which is a percentage of the remaining principal amount. Pre-closing a cars loan is not recommended because timely EMI payments can help improve your credit score.
Types of car loans: There are three types of car loans available from banks: new cars loan, used car loans, and loans against car loans. New cars loan can be used to buy a new car, whereas used cars loan can be used to buy a used or pre-owned car, as the names suggest. A loan against a car is a type of loan in which you can use your old car as collateral to get a loan from a bank to buy a new or used car.

Types of Car Loans Offered

New Car Loan: A new car loan can be used to purchase a brand new car right out of the showroom, as the name suggests. Banks offer loans with interest rates ranging from 9 to 14 percent per year and loan terms ranging from one to seven years. Most makes and models of new cars are eligible for new cars loan.

Used Car Loan: Banks and non-bank financial institutions (NBFCs) offer used cars loan up to 80%-85% of the car’s value at a rate of 12-18% p.a. for a loan term of 1 to 5 years. Used cars loan can be used to finance the purchase of pre-owned or used cars that are less than 5 years old or have a loan term of fewer than 10 years.

Loan against Car: When a person is in desperate need of money, he or she can use his or her old car as collateral to get enough money to buy a new car. This is referred to as a Loan Against Car. Some Indian banks offer a loan against a car of up to Rs.10 lakh, or 100 percent of the car’s value, for a loan term of 1 to 3 years at an interest rate of 14-15 percent per annum. If you have a bad credit score, for example, you can use your old car as collateral to get some much-needed cash from the bank.

Factors of Car Loan Approval

Applicant’s CIBIL score– When it comes to car loan approval in India, the CIBIL score is extremely important. The CIBIL score is a rating given by the CIBIL Bureau to an individual customer based on his or her past loan repayment history. If you have a bad credit score Don’t worry we have the Solution.

The borrower is given a high rating if he or she is consistent in paying the loan EMIs on time. Borrowers who were late with their EMI payments, on the other hand, were given a low credit score.

Car loan repayment period– In India, cars loans are typically repaid over 1 to 7 years. The borrower can choose the repayment period that is most convenient for him or her. The repayment period plays an important role in determining the monthly EMIs.

The EMIs are lower if the tenure is longer, and they are naturally higher if the tenure is shorter. However, buyers should set a shorter repayment period because they will have to pay more in interest otherwise.

Age of the car– When applying for a car loan in India, the age of the vehicle is a very important factor that lenders consider. The car’s age plays a significant role in determining its value. In India, a car’s value usually begins to depreciate by at least 10% the moment it is driven out of the showroom.

After that, the value continues to depreciate with each passing year. Used cars loan are available from banks or lenders for vehicles that are less than three years old. This ensures that in the event of a loan default, they will be able to recover the money invested by repossessing the property without incurring a loss.

New Car Loan Vs Used Car Loan

The difference between a new car loan and a used car loan is not only in the purpose of the loan but also in the interest rates and loan term. The cost of a new car is higher than the cost of a used car. Is this true, however, for the cost of new and used car loans? The following are the distinctions between new and used cars loan:

Loan amount: Since the cost of a new car is higher than the cost of a used car, the loan amount for a new car is higher than the loan amount for a used car. Banks are willing to lend up to 85 percent of a new car’s ex-showroom or on-road price. Banks only lend up to 70% to 80% of the purchase price of a used car.
Interest rate: the loan amount for a used car is lower than the loan amount for a new car, the interest rate for a used cars loan is 5-7 percent higher than the interest rate for a new cars loan. Furthermore, lenders believe that providing a new cars loan is less risky than providing a used cars loan because a new car has a higher resale value.
Loan tenure: New cars loan have a loan term of 1 to 7 years, while used cars loans have a loan term of 3 to 5 years. As a result, a new cars loan has a longer loan term than a used cars loan. The length of a cars loan is determined by the vehicle’s age and the loan amount.
Loan EMI payments: When compared to used cars loan, new cars loan have lower EMI payments due to longer repayment periods. Because the loan tenure for a used cars loan is comparatively shorter than that of a new cars loan, the EMI for a used cars loan is higher than that of a new cars loan.
Down payment: The down payment for a used car is higher than a new car as lenders are willing to lend a maximum loan amount of only half the price of a used car.

A used car’s insurance costs are higher than a new car’s due to two factors: maintenance costs and safety features. A used car’s maintenance costs are higher than a new car’s, and a new car’s safety features are more extensive than a used car’s.

As a result, the insurance premium for a used car is higher than for a new car. Similarly, when compared to used cars, a new car depreciates quickly. A used car depreciates at a slower rate than a new car.

Consumers who want to buy a car of their choice but don’t have the funds to do so can take out a loan. Choose a loan with the lowest interest rate, a suitable loan tenure, no processing fee, and flexible repayment options when making your decision with SoniMoney.

Most makes and models of cars in the passenger and commercial vehicle segments, ranging from hatchbacks and sedans to Sports Utility Vehicles (SUVs) and Multi Utility Vehicles (MUVs), are eligible for loans (MUVs). Tax deductions are also available for commercial vehicle loans.

How does Car Loan Work