Buying a Car: Car Loan FAQs

Thinking of buying a car? If you have the cash, go for it. In case you do not have the money, getting a loan is the perfect option. Though, before applying for a loan, it will be better for you to have a clear knowledge of how the process of financing works. Find below answers for some of the most frequently asked questions by car loan applicants. 

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Q) What type of vehicles can I purchase under a car loan?

There is no such restriction. You can purchase a new or even a used vehicle and it might be any vehicle, from small cars and sedans to SUV or even MUV. A car loan is also called auto loan because it allows you to purchase any kind of vehicle you please, irrespective of its size or even purpose.

Q) What is the tenure for an auto loan?

The tenure for a car loan can be anywhere from 12 to 60 months or even more, depending on your preferences.

Q) How does a car loan exactly work?

When you apply for a car loan, the financier offers you with the funds you need to buy a vehicle for your personal or business use. This loan is secured against the vehicle and once you have repaid back the loan amount along with the interest, you will retain the full title for the car.

Q) What is the eligibility criteria for a car loan?

Salaried as well as self-employed individuals above the age of 21 at the time of the contract and under 60 years of age at the end of the loan tenure are eligible for an auto loan. As for salaried individuals, they should be employed with the same employer for a minimum of 2 years and self-employed individuals should be in the same business for 2 years or more. Loan applicants should be able to show a stable residence of minimum 1 year.

Q) Is there a maximum amount of loan I can avail and what are the factors it depends on?

Certain financial institutions offer 80 to 100% of the value of the vehicle. The amount of the car loan depends on:

●     Annual salary or income

●     The type of car you want to purchase

Q) Is the interest rate flexible?

Yes, the interest rate is flexible. You can even get the financier lower the car loan interest rate in case you have a good credit score and satisfy all the other pre-requisites put forth by the financier. Before signing the contract, it is advisable that you compare the interest rates.

Q) In what ways can I pay the EMI?

You can pay the EMI through post-dated checks, Electronic Clearing Services, auto debit or cash.

Q) What is the collateral required to get an auto loan?

You do not require any collateral because the vehicle itself is the security for the loan.

Q) Is there any way to increase the loan amount?

You might be able to increase the loan amount by clubbing your spouse/father/son’s income, in which case, he or she will become a co-applicant for the loan.

Q) What tax benefits can I enjoy on a car loan?

If you are taking a car loan purely for your personal use, there will be no tax deduction benefits. Although you can claim for tax deductions, if you can show that a certain percentage is used for business purposes. Needless to say, in case the auto loan is taken for commercial use, you will be eligible for tax benefits.

Q) What will happen if I delay paying the monthly installments?

In case you delay the monthly payments, you may be charged extra as delayed payment charges. In addition, it will put a serious dent in your credit score. 

Now, assess your financial situation, compare car loans offered by different financial institutions and apply for a car loan. Your dream car is only an application away.

Author Bio - Lewis Schumacher is a retired financial consultant of https://magma.co.in/. At present, he is an active blogger giving his insights into the benefits and methods of acquiring loans.