Most cars in India are purchased through a car loan. This is the best option when you do not have enough finance available right away. People in such cases opt for a loan which can be repaid over Equated Monthly Instalments (EMIs) over a pre-defined term duration. However, before applying for car loans, we must understand the complete process in order to make the process faster and avail the loan without any hassles. Here is a definite list of check points you will need to understand in order to get a car loan in India:
Step 1: Shortlist your Car
Before going into the technicalities of the car loan, you must first shortlist the car that you want to buy. Based on the make and model of the car, your loan will be sanctioned. Remember that for new cars, lenders in India generally give out up to 85% of the ex-showroom price of the car as the loan amount. In certain cases, you can also receive up to 100% of the ex-showroom price as loan. This percentage is much lesser for pre-owned cars usually. Once you have shortlisted your car, you can proceed towards car loan eligibility check.
Step 2: Check your Eligibility
Your eligibility amount for car loan would primarily depend on the following factors:
- Make & model of the car
- Total work experience as well as work experience with the current employer
- For self-employed individuals, the total duration of the business will need to be provided
- Proof of earnings
Step 3: Decide on the Loan Tenure, Loan Amount and EMIs
Once you have checked the eligibility, you can now decide on the loan amount that you would need and also use some car loan calculators in order to check different options available. In certain cases where you have already provided certain down payment, you would need lesser amount. You must also decide on the loan tenure based on the monthly instalments that you would be comfortable paying. You can also check the various options available online for car loan EMI calculator. You must carefully consider the loan amount, loan tenure and interest rate of the car loan as these aspects will impact the overall cost of the car and the loan for you.
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Step 4: Negotiate for the Interest Rate and Other Charges
In most cases, car loan interest rates are fixed. However, you can negotiate for the same based on your credit score, buying the car from a reputed dealer, and providing all necessary documents perfectly. You can also wait for some time if you think interest rates will go down. The interest rate is basically the cost that the lender levies on you for availing the benefits of financing the car for you. Apart from this, you must also check if there are any other charges. Most of the lenders also levy processing fees. This ranges from about 0.4% to 1% of the loan amount based on the lender that you have selected. It is advisable to check the list of cars that the lender finances in order to avail the maximum benefits out of your car and the overall loan deal. The interest that you would end up paying to the lender over the course of the loan tenure can actually be considered as an additional cost of the car itself. So, you must take care of this and add this aspect to the overall cost of the car in order to come up with the actual cost that you would need to incur over the course of time. There are further costs involved in early closure or foreclosure as well as part payment of the loan. You must check these costs as well in case you are planning to pay off the loan before the due period. Also note that there are no tax benefits that can be availed on car loans in India.
Step 5: Provide Relevant Documents
You must keep the basic documents including ID, address proof, income proof, etc. ready. Once you submit the relevant documents that the lender has asked for, your process is almost complete. Here is a definite list of documents that you would need in order to get the loan sanctioned:
- Any one from Aadhar card, passport, pan card, driving license, voters ID, etc. as identity proof
- Any one from Telephone bill, electricity bill, Aadhar card, ration card, life insurance policy, passport, voters ID, driving license, etc. as address proof
- Latest salary slips and form 16 as income proof
- Self-employed individuals with sole proprietorship would additionally need to present latest income tax returns and bank statement of last 6 months
- Self-employed individuals with a partnership firm or private limited company or public limited company would additionally need to present audited balance sheet, profit & loss account from the last 2 years, company income tax returns from the last 2 years, and bank statement of last 6 months
Step 6: Book your Car
Once you get the loan sanctioned, the lender will deposit the funds in your account. You can now visit the dealer to complete the payment and booking. In order to understand how a car loan works, read about the points you should consider before opting for a car loan.
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