Introduction to car loans
The only viable option for any middle class person for buying a car would be taking a car loan. This introduction is for the sake of the few who doesn’t know about car loans. In layman terms, car loans are provided to people who can’t afford to pay the full amount. Banks or other private institutions who provide the money would charge an interest on the same. This interest depends on the type of loan or the type of bank/institution.
Procedure to get a car loan
The first and foremost step to get a car loan is to have no existing debt. Existing debt, which is unpaid would result in banks rejecting your loan. The next step would be to make sure you have enough cash and to figure out your loan tenure. Caution is advised as improper planning would result in a serious strain in your budget. Another important step would be to get your loan pre-approved, which would result in less paperwork. It is to be noted that pre-approval is valid for only a limited time.
Avenues to get a loan
The number of ways to get a car loan has increased exponentially in the current day and age. Banks, which are the oldest Avenue for getting loans, remain the primary source for most loans. Major car companies also provide loans for their cars, which would mostly be at a lower interest rate. Dealerships, which doesn’t provide a direct loan, would have partnerships through banks, credit unions and private financial institutions. They would arrange for financing. The latest avenue for a long would be through online financial services. They are capable of providing results from a large number of lenders in a single click.
Different types of Car loans
The following table lists the pros and cons of the different types of car loans
|Type of loan||Pros||Cons|
|Pre computed loan||Easy to plan, since principal amount and interest is pre-calculated||Cannot forgo interest by paying in advance|
|Simple interest loan||Interest is calculated on the amount owed. Easier to pay back as the interest reduces each month||Paying small amount would result in the inflammation of interest|
|Secured loan||Loan given against collateral, mostly another car or house. Need not pay principal amount in some cases, while in most cases the same would be reduced significantly.||The collateral would be taken by the lender if the loan is not payed.|
|Unsecured loan||Loan given in faith, without a collateral.||Would generally have high interest rates.|
|Car refinance loan||This loan on loan would be for people who could not pay the installment on their car loan.||Lenders mostly tend to increase the interest rate.|
Good time for car loan
- Car loan eligibility has increased drastically in the recent past, because of encouragement from lenders and market demand.
- The number of institutions and services providing car loans have increased exponentially. The market demand has also resulted in attractive offers and deals for people who are on the lookout.
- Education on car loans have increased due to the Internet. Online loan comparison and calculation have been a boon for people.
- Checking for car loan eligibility has also become easier, as it is now easy to check credit ratings and interest rates for different cars.
- The interest rates for car loans in India have been reduced. The new interest rates on purchase of new car is one percent less than the previous one.
- Document control for a car loan is stringent. An application can be rejected even if a single document is out of place. It is important to review the documentation required.
- It is advised to keep the loan duration on the shorter side, since a long term loan would result in higher interest rates.
- Loan agreement should be read thoroughly to avoid any hidden payments.
- Be careful of special offers as they are designed to lure people. Generally lenders would add additional charges to most of their offers.
- The high number of lenders also lead way to a lot of fakes, it is always better to enquire a trusted lender. If a new lender provides lower interest, it is important to research more about the lender before applying for a loan.