What Factors To Look For While Obtaining A Car Loan
Each bank and the financial institution offers different schemes for car loans.
The borrower has to consider several factors while obtaining a car loan -
Deciding the car :
The first factor to consider while applying for a car loan is to extensively research cars and their models. Costs such as maintenance, insurance, fuel, etc., should also be considered. The borrower should also decide whether they want to purchase a new car or a used car. Finally, the borrower should finalise depending upon a car based on their budget and capacity to repay the loan amount without defaulting.
Credit score :
The borrower should consider their credit score before applying for a car loan. The borrower’s credit score determines their eligibility and the interest rate of the car loan. A minimum credit score of 750 is considered beneficial for the borrower.
Interest rate :
The borrower should consider the interest rate charged by the bank or the financial institution. A low interest rate is advantageous for the borrower. This is because it directly affects the equated monthly instalments to be paid by them; the lower the interest rate, the lower the EMI. Hence, they would save more money with a low interest rate.
Repayment capacity :
The borrower should consider their repayment capacity before availing of a loan. In addition, they should consider their existing debts, if any. Finally, they should use the car loan EMI calculator available on the bank’s website to calculate the EMI they would have to pay on availing of a car loan. Then, the borrowers should calculate different combinations of loan amount and loan tenure to figure out the one that fits their requirements.
Tenure :
Based on their repayment capacity, the borrower should consider the loan tenure, whether short-term or long-term. In a short-term car loan, the monthly instalments are bigger, but the interest rate charged would be less, and they would get rid of the debt faster. In a long-term car loan, the monthly instalments would be smaller, but the interest rate charged would be higher, and it would take more time to get rid of the loan. The borrower should decide on the tenure based on their repayment ability and financial requirement.
Prepayment and foreclosure charges :
The borrower should consider the prepayment and foreclosure charges on the car loan. Prepayment allows the borrower to pay off the loan amount before the tenure end and save up on interest; however, banks charge a fee on prepayment and foreclosure. The penalty rate differs in every bank, so the borrower should decide accordingly.
Loan to ratio value :
The borrower should consider the loan to ratio value on the car loan offered by the lender. Many lenders offer a loan to ratio value of upto 100% on both new cars and used cars.
Processing fee :
The borrower should consider and compare the processing fee charged by each bank and financial institution. The lower the processing fee, the more the money saved by the borrower. Such information is available on the website of the bank or the financial institution.
Insurance :
It is a wise decision to take insurance cover on the car purchased. However, the borrower should consider doing their research on insurance covers rather than accepting the one offered by the lender because the lender offers a cover from an insurance company with whom they are affiliated, so the borrower may not get the best deal.
Other factors :
The borrower should also consider other factors such as the service tax, acceleration clause, offers and discounts, etc., on the car loan.
ICICI car loan provides detailed information regarding the loan process, interest rates, processing fees, eligibility criteria, documentation, etc. Any individual can access this information on their website and use it to make the right decision while obtaining a car loan. The borrower has to repay the principal amount in addition to the interest charged upon it during the decided loan amount.
Also read this: What benefits i will get from car loan
