10 FAQs To Ask While Applying For A Car Loan
Are you looking to purchase a car? There are various financing options available in the market that can help you get your dream car without any hassles. If you are looking to clear your doubts related to the same, This blog covers 10 FAQs that you need to ask while applying for a car loan.
Are you looking to purchase a car (New/Used)? There are various financing options available in the market that can help you get your dream car without any hassles. If you are looking to clear your doubts related to the same. This blog covers 10 FAQs that you need to ask while applying for a car loan.
Purchasing a car is an important milestone and since It is an expensive investment, most of you will consider getting a car loan to meet your finances. However, getting a car loan includes a lot of steps and procedures, so you may have a lot of questions and doubts going ahead further with it.
10 FAQs to Ask While Applying for a Car Loan
Here are 10 FAQs that you should ask while applying for a car loan:
- How much finance can I get for a new/used car?
Banks and NBFCs often cover 80% to 90% of the car’s original retail value. The remaining sum, which includes the balance of the car’s price, registration fees for road taxes in case of new, and other similar expenses, must be paid out of your pocket. So you need to check how much finance you can get from a certain bank or NBFC.
- How long is the Loan Period?
Most lenders offer car loans with terms between 1 and 5 years. The tenure may, however, occasionally be increased to a total of 8 years depending on loan ticket size. Since cars devalue over time and you might have to pay more than the car was originally worth, you must pay off the loan as soon as possible. A longer tenure is another way to lower your EMIs but that depends on your monthly inflows.
- What is the Rate of Interest?
Interest rates start at 8.80% and change depending on the bank/NBFC. Furthermore, the interest rates are higher in case of used car financing as compared to new car. Furthermore, it will be influenced by variables, including the loan’s value, salary/monthly income, credit score, and other essential factors. However, Banks can negotiate on these factors.
- What kinds of interest rates are there?
Interest rates are available in two forms: fixed rates and floating rates. When the interest rate is fixed, you must make the same monthly payment throughout the loan’s term; however, when the interest rate is floating, your EMIs will change (may be go up or go down) based on the fluctuation in the base indicator to which the loan is linked which depends upon the various economic conditions.
- How long will it take to process the car loan?
The bank/NBFC will likely process your application in at least one week. Following a comprehensive background check/assessment of monhthly income/reference check/valuation of vehicle in case of used car finance, the loan amount will be disbursed as part of the transaction. It may take longer if your documents are not clear.
- Is a deposit required to obtain car financing?
Yes, typically, a deposit or down payment is required to obtain car financing. Making a higher down payment can have benefits, such as lowering your subsequent monthly installments. In some cases, banks may finance up to 90% of the loan amount, but having a down payment is a common practice in car financing. The specific deposit amount may vary based on the lender and your creditworthiness.
- What is the EMI cycle?
Your due date or EMI cycle is entirely up to you. In some cases, the banks/NBFC may give you suggested dates and you can choose one out of them.
- What are the possibilities that your application form will be denied?
The following are some reasons the bank can reject your loan application:
- Poor credit score
- Improper KYCs
- Any historical payment defaults
- Inconsistencies in the salary statement
- Low fixed-income obligation ratio or income-to-installment ratio
- An issue with your background check
- Error in your Application Form
- Unclear documentation
In these situations, the lender will give you a letter detailing why your application was denied. You can alter your request and submit it once more if you want to reapply for the loan.
- What may occur if you fail to make your EMI payment?
Late payments/Default in payment can have a negative impact on your credit score. A lower credit score can affect your ability to obtain credit in the future, such as for a home loan or credit card. The bank/NBFC may charge you the late payment fees or may increase the interest rate on the Outstanding balance. This can result in higher overall interest payments over the life of the loan. In extreme cases of non-payment, lenders may repossess your car and impose additional penalties and, in some instances, take legal action to recover the outstanding amount.
- Can you obtain a loan to purchase a used car?
Banks/NBFC do offer loans for used car purchases, but they have higher interest rates depending upon vehicle condition and age of vehicle.
Conclusion
A car loan is something that comes to the rescue when you want to buy a new or used car. Since car loans may involve processes, you need to be ready and clear with the documentation required to deliver what is expected from a bank or NBFC. Hope these FAQs have helped you clear all your doubts.
