Car Loan Interest Rates

Key Factors that Play a Role in Determining the Interest Rates for Car Loans

Your lender will decide your auto loan rate by taking many factors into consideration. It is very important for you to be aware of the aspects that determine your car loan interest rate. This will assist you in preparing properly before you apply for a car loan. This will help you get an attractive interest rate for your car loan. You can purchase your dream car at an affordable interest rate.

Let us now understand the basis for arriving at the various effective interest rates as seen by lenders:

• Your income: Your lender will check your monthly income in order to assess if you will be able to repay the loan or not. If you meet the minimum income criterion, your lender will be confident that you will be able to repay your loan without any problem. Hence, make sure you are earning a good salary while applying for your auto loan.
• Your credit history: When you apply for a car loan, your lender will review your credit history to determine your interest rate. Your lender will check your repayment behaviour, your previous credits, and your promptness in repaying your loan or credit card bills. Hence, you should enhance your credit score before you actually apply for a loan. With a good credit score, you can request your lender to fix an affordable interest rate for you.
• Your debt-to-income ratio: Your income should be proportionate to the debts that you obtain. The total money that you owe to others should be proportionate to the income that you earn. Your debt-to-income ratio indicates your financial condition. The lender will be able to assess if you can repay the entire loan with your current salary. In order to obtain a decent interest rate for your car loan, you should maintain a good debt-to-income ratio for a reasonably long period before you apply. If your outstanding debt amounts are very high, your debt-to-income ratio will be low and hence, you will be charged a high auto loan interest rate.
• Age of the car that you are interested in: If you go for a brand new car, your loan interest rate will be decently priced. On the other hand, if you take a used car loan, your interest rate will be much higher. This is because your lender will consider the quality of your vehicle, the age of the used vehicle, and the age of the car’s parts. This is because, generally, under a car loan, if you fail to repay your car loan on time, your car will be seized by your lender. A lender associates a used car loan with a lot of risk. Even if it is seized, the value of the used car’s parts will reduce drastically in no time. Hence, in order to minimise risk later, lenders charge high-interest rates for used cars during the loan period so that they can earn higher amounts quickly.
• Your loan tenure: You can take a car loan generally for up to 7 years. It depends on the tenure options offered by your lender. If you take a loan for a very short period, your interest rate will be very high. You can choose your tenure according to your repayment ability and your loan amount. Before you decide your loan amount, you can utilise any online EMI calculator to compute your loan EMIs for the entire tenure. You can choose your tenure according to your preference.
• Your down payment amount: In the context of car loans, a down payment refers to the upfront payment, which is a part of the total outstanding amount. This payment is typically made when you enter into the loan agreement and the payment is generally made in cash. If you make a high down payment, your lender’s risk will be less as the amount to be lent to you will be low. Hence, your lender will provide you with a low-interest rate. Moreover, when you make a pretty high down payment, your lender will believe that your income and financial condition are good. Hence, your lender will be assured that you will be able to repay your full car loan on time.

Points To Watch Out For When You Are Planning To Get a Car Loan

When you think of getting a car loan, you are bound to get confused as to which car loan option to choose from the wide variety of options. By investing time in research, you can choose the perfect car loan option.

• Choose between new car loans and used car loans: You will need to be sure if you want a new car loan or a used car loan. You can compare the interest rates between these 2 types of loans and then make a sensible decision. You will need to remember that the loan amounts and loan interest rates differ for these 2 categories of auto loans.
• Be aware of your payment ability: When you take a car loan, you will need to make a down payment and your monthly payments in installments to fully repay your loan. Hence, you will need to consider your other expenses and then see how much you will be able to spend for your car loan on a monthly basis. Only if you are aware of your payment ability, you will be able to choose your car loan amount wisely.
• Analyse the need for your car loan: Before you apply for a car loan from any lender, make sure you are clear about why you need the loan. You should also assess if you are financially ready to handle the loan. You must also consider the total car loan cost including the interest. You will also have to decide the car features that you want to take.
• Compare multiple car loan options available in the market: You can check out the various car loan options available in the market by using third-party financial websites or the official websites of banks and NBFCs. This will help you get a clear picture of the various interest rates, processing fee, pre-payment fee, and EMIs of different car loans. You can accordingly make a decision.
• Read the fine print of your car loan documents: Make sure you read everything in your car loan documents carefully and patiently. Do not miss reading the tiniest text of the fine print. If you find any discrepancy in the loan document, you can get it immediately clarified with your lender. You should be clearly informed about your loan’s terms and conditions in the beginning itself so that you do not face any issue later during your loan tenure.
• Try getting a lender who wouldn’t charge pre-payment fees and other fees: If you do proper research, you may be able to find a lender who does not charge you for early repayments. This will enable you to repay your loan early when you have more than sufficient funds in your bank account. When your lender charges additional amounts for pre-payment, your loan expenses will unnecessarily increase.
• Be careful about hidden fees and charges: When you apply for a car loan, you should make sure that you look for all hidden fees and charges. You might go for unrequired additional costs unknowingly such as car loan insurance, car protection, etc. You can avoid these costs if you are sure that you do not need them. Also, if you find alternative sources that provide these services, you can choose them instead of increasing your car loan expenses.
• Make sure you find a lender who is transparent: When you are looking for a car loan, you should make sure that your lender is someone who does not mind talking about every term and condition. This will help you have a good relationship with your car loan provider. You will also be able to trust your lender properly.

General Eligibility Conditions that are Good for Approval of Car Loan

When you are interested in applying for a car loan from any bank or NBFC, you will need to meet certain eligibility criteria to get your loan application approved. Each bank and each NBFC will have different eligibility criteria for its car loan borrowers. The eligibility conditions that are common across all lenders include age, income, insurance proof, identity proof, car model, etc. Apart from individuals, a business firm or organisation can also apply for a car loan.

How to Apply for a Car Loan Online

• You can apply for a car loan online or by visiting the office of a bank or an NBFC. When you choose the online mode of applying, you can enjoy speed, convenience, and clarity. You can obtain a number of benefits when you apply for a car loan online.
• You can apply either through third-party financial web portals or through the official websites of banks and NBFCs.
• When you apply online, you can compare the various interest rates of different car loan options offered by multiple banking institutions and NBFCs.