Thursday, 19 May 2016

Checklist to see Before You Apply for a Car Loan

In current times cars are mostly bought by taking a loan. Though taking a car loan is not as complicated as taking a home loan but still an individual needs to exercise caution and consider a few factors before applying for a loan. This will ensure that one gets the best deal and also does not have to face any negative impact on the credit score due to a rejected loan. Though the basic process is same there may be a few variations from one lender to another which makes it useful to check the lender’s process before actually applying for a loan.

Checklist for Taking a Car Loan:
Let us briefly discuss a few factors that must be considered before one applies for a car loan.

Ø  How Much to Borrow:  The first thing one needs to finalize is how much to borrow. This will be based on two factors; the first is how much one has saved for the down payment and the other is the EMI bearing capacity of the borrower. The loan requirement will depend on the cost of the car and the LTV policy of the lender. Having said that the amount one can afford to pay as installment and what is saved as down payment also influence the borrowing capacity. One can use a car loan EMI calculator available online to check how much they can pay each month comfortably.

Ø  Terms and Conditions of the Lender: Though the basic rules for auto loans will be same across lenders, there can be small variations in the terms and conditions which can make one FI more suitable for your requirements. If you have saved less for the down payment then one might prefer a lender that has a high LTV ratio. LTV for new cars is usually around 80% to 90% while in the case of second hand car loan it is around 60% to 80%.

For Example: Mr. Suresh wants to buy a car worth Rs. 800,000. He has saved around Rs 100,000 for down payment which is almost 13% of the car value. Thus he will have to approach a bank that has a LTV ratio of 90% for car loans as a lender who offers a lower LTV will not match his requirements.
Factors like processing time, charges, loan duration also impact the borrower’s choice and must be given due consideration before finalizing the FI.

Ø  What is your Credit Score? An individual’s credit score plays an important part in loan approval. Thus a few months ahead of applying for a loan one must access their credit report to see if there are any negative or disputed items in it. This will let give the person some time to try and improve upon their credit score if required and get a quick loan approval on favorable terms. In case of a low credit score one has the option to approach lenders that offer loan for bad credit score. Having said that, this option is highly avoidable as these loans are available at very high interest rates. Thus it is advisable to keep a healthy credit score which will allow one to access a loan on favorable terms.

Ø  Documents Required: No loan can be approved without the requisite documents. These will include the mandatory identity and address proof, income and employability proof and so on. Ahead of applying for a loan one must get the required documents ready so by checking with the lender the actual requirements. In case something is missing take necessary actions to get the requisite documents ready.

Consider the above when planning to borrow for buying a car. Being prepared will ensure that one does not waste time and effort when they actually apply for a loan and will also help in saving money and time.

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