Owning a car that was once considered a luxury has become a necessity today. Buying a dream car is no longer a hassle now as you can easily apply for a Car Loan. Many banks, NBFCs (Non-Banking Financial Companies) and other financial organisations offer car loans at attractive interest rates, making car buying affordable and easier than ever before.
But before you apply for a car loan, there are many important factors that you must keep in mind to ensure that you have a smooth borrowing experience. In this article, we will discuss these factors.
- Assess your financial condition
Before you start looking for the right lender to apply for a car loan, it is pivotal that you assess your financial condition. Get a clear understanding of your monthly income and expenses, and decide on the maximum amount you can afford to borrow so that you can easily repay the EMIs.
When you apply for any kind of loan, you must have a good Credit Score to get quick approval. A car loan is no exception. Having a high Credit Score is a reflection of your good credit history, and you can get better car finance rates from banks.
- Know about the rate of interest
Car loan interest rates vary from one bank to another and depend on factors like loan tenure, the car model you want to buy, CIBIL Score, down payment, etc. If you want to get a car loan at an affordable interest rate, you can apply with South Indian Bank, where the interest rate starts from 8.75%* onwards for a new car.
Just as it is important to choose the right lender that offers a car loan at an affordable interest rate, it is equally critical to decide on the loan tenure carefully. A long tenure may help you lower the EMI, but you may end up paying more interest on your total loan amount.
But, if you have the financial resources, choose a shorter tenure. Generally, banks like South Indian Bank offer a car loan for a maximum period of 84 months for a new car. So, assess your finances and choose the right tenure so that the EMI is affordable.
- Know about all the charges
When you do your research about different lenders offering car loans, you must also check the different charges they levy. This has a significant impact on your overall loan cost.
Let us understand this with an example:
Ms. Monica Shetty took a car loan of Rs. 5 Lakh with ABC Bank at 7% interest rate. However, the bank levied a high processing fee of 1.5%. She also had to pay a 2% penalty for prepayment and another 1% extra charge for document verification.
On the other hand, Ms. Sindhu Nair availed a car loan of Rs. 5 Lakh with South Indian Bank at 8.75%*. But she had to pay only a nominal processing fee of 0.75% with the maximum cap of Rs. 10,000. Also, she did not incur any documentation verification charges or prepayment penalties.
So, the above example shows that, while availing loans you should not just look at the interest rate offered but also other facilities & associated charges offered by the lender which will impact your cost and overall loan process.
- Read the terms and conditions carefully
Continuing with the above example, Ms. Monica Shetty could have easily avoided paying the additional fees and loan charges, if she had carefully read the loan’s terms and conditions before signing the papers.
So, when you apply for a car loan, make sure to read the fine print carefully and understand each and every aspect of the loan, including the charges involved, additional fees if any, repayment charges, etc. This helps you avoid being caught with unexpected surprises and legal issues with the lender.
Always be prepared with the necessary documents, such as your identity proof, income, and address proof. Knowing the list of documents needed for the application in advance will help to shorten the loan approval process and prevent any unnecessary delays. Many banks like South Indian Bank is providing digital documentation for Car Loan which will help to smoothen the application process and avoid multiple visits to the branch.
If you want to purchase an EV vehicle, you can look for special offers from lenders. Many banks and financial institutions offer loans at lower interest rates with additional benefits to promote sustainability.
- Ask the car company if they have tie-ups with any lender
Almost all the car dealers in India have tie-ups with different lenders. So, while buying the car, you can ask the dealer if they can suggest a suitable lender for the loan. If you go with such a lender, you may get the loan approved faster with minimal documentation process. Also, sometimes, you may get special car finance rates because of the dealer-lender relationship.
You can positively take advantage of this. However, you must read through the terms and conditions carefully and compare the offer with other lenders before making the final borrowing decision.
Final Word
Thanks to the availability of Car Loans, buying a car has become much easier than it was a couple of decades ago. Do your due diligence about car loans, and more importantly, choose the right lender to get the best borrowing experience.
Disclaimer: The article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of The South Indian Bank Ltd. or its employees. The South Indian Bank Ltd and/or the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial/non-financial decisions based on the contents and information’s in the blog article. Please consult your financial advisor or the respective field expert before making any decisions.
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