Car Loan
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CAR LOAN: Obtaining a new or used car maybe one of the biggest procurement one can achieve but made easier through the aid of a Car loan.

A car loan is an amount of money an individual borrows in order to purchase a car. It is the sum of money that is lent to an individual, a business or another entity to purchase a new or used car.

It is secured against the vehicle intended to purchase which implies that the vehicle serves as a collateral for the loan issued.

They are for a specific length of time which could be between 24 and 60 months or more as some car loan has a longer periods payments which depends on the agreement between the lender and the borrower.

Longer terms loans like 60 months or 72 months make the monthly payment lower. As the longer the loan term so do the borrowers have to pay more over the life of the loan coupled with the interest.

Monthly payment of the loan depends on the amount of the loan, the term and the amount of interest the borrower have to pay over the course of the loan.

However, The shorter the loan term, the more easier to pay off but if a long term, the borrower may find it difficult to pay off the loan due to long shelf life of the loan.

Car loans constitute of variety of taxes and fees which are added to the total loan amount.

It is also known as an automobile loan or an auto loan.

Features/ Benefits Of A Car Loan

★ The loan tenure can be from 1 to 7 years.

★ The loan amount can be three times the annual income of the borrower.

★ Funds are acquired for buying a new or used car.

★ Instant financing facilities for the car can be offered by some lender.

★ The car purchased are held as collateral until the borrower repays the loan.

★ The financing can increase to 85% – 90% of the on-road price of the car.

★ Equated monthly installments (EMI) are mostly adopted as a repayment structure.

Factors Affecting A Car Loan

Debt-to-income: The lender determines the ability of the borrower to take up a loan and go through it. If the DTI is high, the lower the loan amount regardless of the borrowers’ income.

There is risk that the loan term maybe stringent.

Down payment:  Lenders prefer a borrower submitting a down payment. All loans come with a defined margin.

Margin implies a sum of money or percentage of the on-road car price which the borrower makes. This gives the lender a sense of guarantuity. Thus, it’s been deducted from the borrowers total cost of ownership.

Age If Vehicle: The age of the vehicle is essential. As it is important in deciding the interest rate especially a used car. It is a decision factor in acceptance and rejection of a loan application.

Credit Score: The lender enquires about the borrowers credit score to determine its worthiness.

If worthy, the lender issues the loan amount and associated terms and conditions to the borrower.

Requirements For A Car Loan

★ Photo ID and Age proof: passport, PAN card, driving license, birth certificate etc.

★ Residence proof: valid passport, voter’s ID, post paid utility bills.

★ Bank statement for the last six months.

★ Form 16 and salary slip.

★ Income statement.

★ Latest income tax returns.

★ Credit report.

Where To Get This Loan

★ The Banks

★ Credit union

★ Online lenders

★ Dealer financing.

Car Loan Eligibility

Individuals between 18 to 75 years irrespective if a salaried individual, self employed whether in business or profession are eligible to apply.

Salaried individual should have a total work experience of at least 3 years while a self employed will have a minimum of 2 years in the current business or profession.

The bank or lending institution evaluates the monthly income which this gives a greater chance of the car loan being disbursed. Lending institutions closely scrutinize all the documents required before deciding on the car loan amount to be disbursed.

The type of vehicle wanted the car loan tenure which can be 3years, 5 years or even 7 years, employment stability and pre-existing EMIs on outstanding loans will be considered before approval at a certain EMI.

How It Works

Car loans are basically on simple interest and not imply any form of compound interest.

It is essential to note that the longer the amortization period, the more there is an increase in the interest charges whether the monthly payments are lower with long term loan.

Short term loans have a low interest rates compared to 60 months term or even longer, thereby increasing potential car loan savings as the loan term is prolonged which this poise the borrower to more risks.

When a borrower defaults in any form it affects the credit score. If the borrower could not meet up paying up the car loans as agreed with the lender or in any way there is a negative effect, the borrower should know it affects the credit score also endangers the collateral as it was placed at risk.

The collateral here is the car which is financed by the lender as the lender is still in posses of the car title and ownership until the payments are cleared off.

It is important to talk to the lender if in any way discovered any financial trouble and instability as this may be a good step taken. Some lenders may introduce a debt relief options which may be skipping a few payments or refinancing.

Some lenders may allow someone else to take over the loan payment which has a similar documentation but, the new borrower must finish all the payments.

A car loan is repaid to the lender in monthly installments known as loan payments. Monthly payment is determined by the sum amount of the loan, the tenure and amount of interest the borrower have to pay over the life of the loan.

Loan contract is broken down into the principal and interest in the loan.

Auto / Car Loan Calculator

Auto loan calculators helps to estimate a monthly car loan and how much to be spent.

The auto loan payment calculator delivers a monthly payment based on a price, trade in and down payment information supplied. The loan term and interest rate can be changed to determine how interest rate can be changed to determine how the borrowers’ payment and total interest is changed.

The reverse auto loan calculator gives the borrower a vehicle price range based on the payment amount supplied.

Car loans may be an excellent answer and be a solution for the need of a car comes true provided all protocols and measures are followed. You can also read about about Home Loan and how it works .

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