Today’s youth want to own a car. As soon as they get a good job, they avail a car loan to buy their dream car. And yes…. Banks are happy to lend money to these young customers, to realize their dream. Before availing a car loan from a bank, you need to take a close look at this:
Rate of interest charged by the bank
Select a bank which offers the lowest rate of interest. Many public sector banks offer a good bargain on the interest rates, when compared to their private counterparts. Most banks give women customers a discount on interest rates, while availing car loans.
Check processing fees
Loan processing fee is a one-time fee charged while availing a car loan. You must select a bank which charges the lowest loan processing fees. Many banks charge a fixed processing fee. Some banks charge a processing fee, depending on the amount of loan availed. The processing fee has to be paid irrespective of whether the loan is sanctioned or not.
Check for prepayment charges
Many banks charge a prepayment fee, if you pay off the car loan earlier than its due date. The good news is some banks do not charge a prepayment penalty for the car loan. If you have the capability to prepay the car loan, then only select a bank which has zero prepayment charges.
Amount of loan availed
Costlier the car, higher is the loan amount you need to avail. Your income comes into play when sanctioning your car loan. The bank will sanction you a car loan, based on the amount you earn.
Before availing a car loan, learn how much of a loan you can avail. You might have to make a down payment of about 10-15% of the car value yourself. You can avail a car loan for the remaining amount.
Higher is the amount of down payment you make on the car, lower is the amount of loan you need to avail. This means you pay a lower EMI on the car loan.
Make sure that the EMI you pay on the car loan, does not exceed 20% of your monthly take home salary. Otherwise you might struggle paying back the car loan EMI’s.
Your Credit History
The number of defaulters on car loans has increased in recent times. Today banks are very strict while sanctioning you a car loan.Banks check your Cibil score before sanctioning you a car loan. If you have fallen behind on repayment of EMI’s or credit card dues, on loans/credit cards you have availed in the past, you get a low Cibil score.Banks will not sanction you a car loan if you have a low Cibil score. You need to have a Cibil score of at least 700 to 750 to make sure, your car loan is sanctioned.