All You Need to Know About Car Financing

Owing a car, especially in today’s day and age, has become more of a necessity. In a country like India especially, buying one is the second most expensive purchase that most of us would make, second only to our home. In all probability, the price of the car you’re considering will be a tad out of your budget, and realizing this there are a lot of financial establishments who come up with car financing options to enable to you to buy the car. These days you could apply for car finance online and even if you choose to go the traditional offline way, you would only need basic documents like proof of id, address, income, etc.

So what is Car financing? Simply put, it is a form of secured loan where you provide your car as collateral. As far as the actual loan amount is concerned, it is calculated based on factors such as current value of the car, the type of car, value of the car is the second hand market, deprecation rate of the car, etc. Most financial establishments will however, offer up to 100% of the on-road cost or at least 90% of the ex-showroom cost.

Moving on to repayment tenure; car financing companies normally set the repayment tenure between 1 to 5 years. As far as EMIs are concerned; the lower the repayment tenure the higher the EMIs tend to be and vice versa. Now, what if you default on default on a payment? Most establishments will let you to default up to two payments. Any more than that and they can have the right to seize your car. Loan defaults have a direct impact on your credit rating, which then makes it extremely tough for you to apply for a loan in future.

Moving to interest rates; you can choose between a fixed and variable one. Also, considering how popular car financing is, financial establishments have extremely competitive interest rates. You can also negotiate the interest rate and try to bring it down. Typically, if you are a devoted patron of a particular financial establishment, they will lower their interest rates for you.

Now that you have a better understanding about car financing, it is wise to go ahead do through research to see for yourself what car finance option best suits your needs.

Tips to cut down on your Car Loan Interest Rate

Investing in a car is the second largest investment any individual ever makes in his or her life after a house. Many of us always finance our car dreams through a car loan. However, amid-st the excitement of getting a new car we really don't try to look into the intricacies of different finances associated with it.

Do you know with few calculations and alterations you can cut down on the premium you pay for the car insurance and also the rate of interest liable on the loan you have borrowed. We list down few tips to take into consideration on how to reduce your car loan rate of interest.

Keep your credit score in check

It is very important to know your credit score. It is one of the first thing lenders take a look at when lending you money. Also, accordingly define the rate of interest over your car loan. Therefore, higher your credit score, lower will be your rate of interest.

If you feel just paying off your debt is all enough to keep your credit score good, then wait and have a keen look. It is also important to pay your debts on time. For instance, a delay of even 30 days is taken into consideration.

Shop around

Do not stick to just one bank or non-banking institution to provide you with your car loan. It is very important to shop around and look for options provided by few in the market. Look for the rate of interest applied by few institutions based on your credit score and accordingly take your call.

Bargain with your existing loan holder

It is always advisable to go with your existing loan provider. However, if you are getting a car loan at a lower rate of interest, then bargain with your loan provider and discuss the offers you are getting from other banks and non-banking institutions.

Finally, choose the institution that provides you the lowest rate of interest and a convenient mode of payment.

How Used Car Loans Work?

Buying a brand new car can prove to be costly deal. So, many people consider buying a pre-owned or used car. Prices of pre-owned cars are quite lower than their out-of-factory counterparts. Furthermore, used car is the best option to hone and sharpen your driving skills.

The prices of pre-owned cars vary according to their age, type, make and model. You may either pay for the car in cash or use a financing option like pre-owned car loan.

Borrowing a pre-owned car loan can be difficult and substantial amount of time and resources are spent to sanction it. Here is a clear-cut overview of how car loans work and what financiers consider before sanctioning a used car loan.

      1.      Age of the car plays a crucial role

The age of the car plays a crucial role in the loan sanctioning process. If the car is more than 15 years old, than borrowing options get ruled out. Similarly age of the car also decides the tenure of loan. For instance, if your prospect car is 2 years old, then you can easily get a loan for tenure of 5 years.

      

      2.      Model of the Car is a deciding factor

Principal amounts of pre-owned car loans vary according to the model and make of the car, along with its age. If the car model is still available in the market, then you will get a loan easily. However, if it has phased out, then financing becomes difficult.

     

      3.      Buying a car from established dealer aids the loan process

Established car dealers have organized process to take care of cars documentation. Proper documentation speeds up the loan sanctioning process.

     

      4.      Valuation of the car decides the nuances of the loan

On applying for a pre-owned car loan, banks and NBFCs like Magma send valuation experts to examine the car. Valuation is done on the basis of car model, manufacturing year, number of kilometers run, claims history, and the whereabouts of the car. Valuation and credit profile of the borrower determines the interest rate, loan value, and repayment options for used car loan.

Once valuation and loan estimation is complete, you have to submit important documents to the financier. Document processing and loan sanctioning takes around 8 to 10 working days.