Car Finance

Car Finance

Owning a car, be it first hand or a used one, is mostly treated as a milestone in one’s life. Other than the practical usage, this is probably a sort of symbol of independence and a financial gratification. The aspiration to own a car in our country is only rising by the day. It is a not uncommon to see a car being purchased when we have some extra money available to us. Add to it, the availability of many new models in the market, makes us want to drive one of those hot wheels.

If you have a regular source of income with good credit eligibility, owning that favourite car will not be a dream anymore. Car loans are easily available today with many options to work out comfortable EMIs. With informed decision-making and smart choices, you will be able to sustain a car loan as well as manage rest of your finances for other needs.

With the demand for cars rising high, the manufacturers themselves have jumped into the loan market to facilitate the buyers to purchase their dream car at affordable costs. Popular brands such as Audi, Toyota, Honda, Tata, Ford, Maruti, Skoda and Volkswagen provide loans to the customers for in-house car models. The major advantage of availing manufacturers finance is that the loan processing time is reduced, and the buyer can benefit from the better loan terms.

Introduction to Car Finance

Car loan is a financial assistance taken to purchase a car with minimal initial payment from your own pocket. The borrowed money from the lender can be repaid in equal monthly instalments over a period of time with an agreed rate of interest. Normally, car loans are secured with the vehicle itself that is being bought. It is treated as a security for the car loan. In case, the loan is not repaid within the stipulated time period, the lender can possess your car and sell it off to end the dues.

Features and Benefits of Car Finance from Manufacturers

Availing a car loan from the manufacturer itself brings in a lot of benefits for the buyer. Following are the features and benefits

Streamlined loan processing – Most car manufacturers have a streamlined process where the loan application and processing are done on a tight timeline. Their centralized system processes all loan applications effectively and enables fast approval.

Easy documentation – The documentation for availing car finance is quite simple and easy. The manufacturer checks the repaying ability of the borrower and thus gathers evidence in the form of documents to ascertain your steady income.

Quantum of loan – For in-house brands, the manufacturers offer funding up to 100% of the car value. Customers can also get customized car loans based on their need. Often, gadgets, insurance and accessories are included as part of the loan value extended.

Tenure – The repayment period varies from lender to lender. However, it generally ranges between 1 year to 7 years. The borrower can choose the comfortable term within the available tenure.

Prepayment – The borrowers can also prepay the loan when they have enough funds to close the loan. The terms vary from lender to lender. Some car finance companies allow you pre-close the loan only after completing a specific period. Some lenders do allow you prepay whenever you can. Charges may be applicable for prepaying your auto loan and varies for different lenders.

Eligibility Criteria to Avail a Car Loan from Car Finance Companies

Before applying for a car loan with the manufacturers, it is important you check the eligibility criteria in order to avoid a rejection. When you meet all the criteria, you may approach the lender for application. Here is a complied list of eligibility criteria to avail a car loan.

• You should be a salaried or self-employed individual having a good repaying ability
• Most car finance companies also provide loans to corporate companies, trusts and partnership firms for which they have to fulfill criteria set by the lender
• The applicant should fall under the age limit set by the lender, the general range is usually between 18 years to 65 years
• The income level varies for salaried, self-employed and companies based on the loan amount and the car model
• All the documents required for the loan should be furnished with clear proof
• Should have a decent credit score

Documents Required to Avail a Car Loan from Car Finance

Documentation is an important process that every car finance company follow strictly.

Identity Proof

Salaried: Identity Proof such as PAN, Passport, Aadhar,Card, Voter Id and an Employee Id issued by the Government of India.

Self-employed: Passport, PAN Card, Driving License, Sales Tax registration Certificate

Address Proof

Passport, Lease Agreement, Telephone bill, Utility Bill, Bank Statement. Address Proof requirement for salaried and self-employed buyers are same.

Income Proof

Salaried Class: Latest 3 to 6-month salary slip and form 16 / IT return

For self-employed: Income Tax returns for last 2 years – along with Balance sheet and P & L A/C, computation of income. If the ITR is audited than audited report along with the annexures are required

The document list provided above is indicative and the sales representative will provide further details upon meeting.

Loan processing and sanction procedure

The car manufacturers offer car financing which is fast, convenient, flexible and transparent. The process for obtaining loan is extremely simple and involves minimal documentation. A representative from the car finance company will meet you when you visit their showroom. All kinds of financing options and the terms and conditions are explained. The representative also assists you with the documentation. After receipt of sanction of the loan, the disbursal takes place. You can now pick up your desired vehicle from the dealership post loan disbursal. It is to be noted that a copy of Car Registration certificate, invoice and Insurance policy must also be furnished. There can be unforeseen situations because of which you may have to cancel the loan. In this case, you need to inform the car finance company prior to loan disbursal. The lender may charge a fee for cancellation.

What are the factors that determine interest rates for car loan availed from car finance companies?

The interest rates for car loan is determined based on multiple factors, two of the most important factors being loan value and tenure. Apart from this, the credit score of an individual would be pertinent. The credit score is based on the existing debt, stability of income, past payment pattern of credit cards, loans etc., Higher the credit score, better are the chances of loan approval and sanction. A higher credit score would mean better bargain on interest rates. Typically, if the loan tenure is longer, the interest rates tend to be lower. Also, if the car loan is availed on a new car the interest rate would be lower as compared to when one is applying for car loan on a used car.

Hence, for an applicant it becomes important to maintain his credit score at good levels. This can be done by promptly paying off the credit card bills, existing debt liability etc.,

How to calculate EMI for car loans?

EMI (equated monthly installment) is the amount that is to be paid on a monthly basis against the loan availed from the financier. The EMI is the sum of two components, namely principle and the interest. One can ascertain the amount of EMI on the car loan by using the EMI calculator on the website. The EMI calculator captures basic personal details, income details, loan value and tenure and generates the approximate EMI payable for the car loan availed. The EMI so generated may differ from the actual payout that may happen subsequently. This would however, be indicative of the amount to be set aside on a monthly basis from the household budget. This gives a clear view of the affordability given the current net earnings and household budget of the individuals.

Car Finance FAQs

1. Can car finance from one manufacturer be used for purchasing vehicles of other brands?

No, most of the manufacturers provide finance for only in-house brands.

2. How long does it take for the loan to be approved?

The loan will be approved as soon as the post-sanction document is received.

3. Do I need to provide security for the loan?

No, there is no need to provide additional security or guarantor. The loan will be provided against hypothecation of the car.

4. Can the loan be foreclosed?

Yes, it can be foreclosed on the payment of foreclosure fee of up to 3% on the outstanding principal amount along with Service Tax.