6 things to consider before taking out a car loan
If you want to get a car loan, you need to take a considerable amount of time to review certain facts and plan for a series of concerns before you choose a car model and go to a dealership to drive your favorite car. Having wise financial considerations is always a smart thing. When you research to find the best auto loan alternative with the best rate and lowest processing fees, it makes you a savvy investor. Let’s take a look at the six things you need to worry about before taking out a car loan.
1. It’s always a good idea to spend around 20% of the cost of the car out of pocket to get the rest funded by the bank. Many banks, on the other hand, provide loans of up to 100% of the value of the car excluding the showroom. Investors should strive to comply with the 20% law, which specifies that they must not take out a loan that would require more than 20% and which could burden their personal finances by increasing their monthly EMI payment.
2. In particular, even though the interest rate is low, some lending institutions owe investors many hidden costs such as processing, paperwork, prepayment, foreclosure, late payment fees, etc. These charges increase the net price charged for the vehicle. Using the EMI car loan calculator, the applicant can measure the cumulative amount he will have to pay over time. To get the best interest rate and save money on your overall car loan, you need to weigh a number of considerations such as the principal amount and the length of the loan.
3. Investors should be aware that their car loan will be with them for a long time and that they will have to pay an IME regularly for several years. The key is to plan ahead financially. In order to keep the tenure low and earn interest, applicants should not commit to the higher EMI amount. Choosing the longer term as this would increase the amount of interest owed on the loan should also be avoided by investors.
4. An investor will pay a range of charges and fees on a car loan in addition to interest. Always check the charges and fees associated with the loan when applying for a loan. Loan processing fees, documentation fees, credit file fees, registration card collection fees, stamp duties, foreclosure fees, late payment fees, fees Loan cancellation, swap and rebound fees are some of the basic fees that investors should consider. Hence, it is suggested that before considering a lender, compare the fees and additional costs of different banks.
5. When an investor tries to repay their loans before the term expires, many banks charge prepayment charges, foreclosure fees, and other fees. In such cases, you should always go for a bank that costs you the least fees. Banks that charge reduced to zero fees should be given priority.
6. A natural person must have a series of documents to indicate to the bank that he has the necessary capital to repay the loan. Despite the fact that an applicant’s credit rating reveals their financial health, banks need additional confirmation and proof from the investor that they are financially stable enough to repay their loans without constraint. A person who has all the KYC documents in hand when applying for a loan will have their loan accepted within minutes.
Eligibility criteria to apply for a car loan
Different banks may have different eligibility criteria for auto loans. Here are some of the most important criteria:
- The applicant must be between the age limit of 18 to 75 years
- He or she must have a minimum income of Rs 20,000
- He must have worked for the same employer for at least one year.
- He must be employed or self-employed
Documents needed to apply for a car loan
You will need to provide documents to prove your eligibility. While each lender has their own set of documents, here are the basic documents:
- Proof of Identity: PAN, passport, Aadhaar, driver’s license, voter ID card
- Proof of residence: Passport. Aadhaar, utility bills, ration card
- Proof of income: Pay slips for the last 3 months, Form 16, Latest computer declarations, Bank statement for the last 6 months
Taxation on auto loans
If you took out a car loan to buy an electric vehicle (EV), you will now get a tax break of Rs.1.5 lakh on the interest you pay. Finance Minister Nirmala Sitharaman said it in the last Union budget (2019-2020), and it is part of government initiatives to improve the implementation of environmentally sustainable automation. . If you buy an electric car, you will owe a gain of around Rs.2.5 lakh over the life of the loan. In comparison, the government reduced the tax limit on electric cars from 12% to 5%. Cars are considered expensive goods, but individuals who take out a vehicle or car loan to buy one are not eligible for tax exemption. The self-employed who take out car loans for commercial vehicles benefit from a tax exemption under article 80C of the IT law.
Auto loan interest rates
With interest rates on auto loans as low as 7.1 percent, now is the perfect opportunity to buy a car if you have thought about it, especially with the latest low interest rates. Public sector banks in India now offer the cheapest rates on auto loans. Over several months the state-owned company Punjab & Sind Bank provided the lowest interest rates at 7.1% led by the Central Bank of India at 7.25% for a loan amount of Rs 10 lakhs with a duration of 7 years. Banks are ranked in ascending order of interest rate, the bank with the cheapest auto loan interest rate listed above, and the bank with the highest interest rate at the end. The table shows the lowest interest rate granted by banks on a loan of Rs 10 lakh. The interest rate shown in the table is an estimate which may differ depending on the terms and conditions of the banks.
|No Sr.||Banks||ROI in% per year|
|1||Bank of Punjab and Sindh||7.1|
|2||Central Bank of India||7.25|
|4||National Bank of Punjab||7.3|
|6||Union Bank of India||7.4|
|7||Bank of India||7.45|
|8||Bank of Maharashtra||7.5|
|ten||Indian Overseas Bank||7.55|