The need for a four-wheeler can become essential for individuals at any point their lives. But, the purchase of a car is expensive in India. Buying a car or a secondhand car can be a costly investment for some individuals that is simply not something individuals can afford. Customers who wish to purchase a car can buy it from their savings but that will put a huge dent in their savings account and will jeopardize their savings which they had saved up for a rainy day. In situations such as these, the customer can opt for a car loan. A car loan is a product provided by financial institutions to customers who wish to buy a new car or a secondhand car. Almost all financial institutions provide customers with a car loan with certain specific conditions that are customer friendly.
Car loans are designed to meet the specific requirements of the customer to assist them for the purchase of a four-wheeler. In a car loan, the financial institution will provide the customer with the loan amount for the purchase of the car. The loan amount will be provided at a certain interest rate. The loan amount that is provided to the customer needs to be paid back to the financial institutions through equated monthly instalments (EMIs). The repayment of a car loan through monthly instalments makes the process of repayment easy and simple for the customer. The repayment on the car loan through monthly instalments is done for a set tenure period. There are some basic factors that affect the interest rates that the customer will get by the financial institution. Factors affecting a car loan interest rate are given below.
X factors affecting car loan interest rate:
- Monthly income:
The monthly income that the customer earns plays an important role in determining the interest rates on a car loan. The financial institution will check the monthly income earned by the customer before providing the loan. If the customer meets the minimum income criteria, the financial institution will be confident that the customer would not have any problems in making the repayments on the car loan.
- Credit history:
Financial institutions before providing the loan will conduct a background check on the customers financial activities and the credit history of the customer. Any outstanding debt or any failures of repayment in the past may reflect negatively on the customer and chances are the financial institution will increase the interest rates or probably reject the application for the car loan.
- Loan tenure:
Usually the car loan tenures go up to almost 7 years. The tenure for a loan can also affect the interest rates. If the customer chooses a short tenure period, the interest rates on the car loan will be high, if they go for a long tenure period the interest rates on the car loan will be low.
- Down payment amount:
A down payment amount is the amount paid by the customer at the start of the loan, which is a part of the loan amount. A down payment is made when the customer enters the loan agreement. A high down payment will reduce the total loan amount to be paid back, thus assuring the financial institution that the customer would not have problems in making the repayments and the interest rates offered will be low.
- Car model and age:
The car model and the age are decisive factors for the car loan interest rate. A financial institution will check the model of the car and the age, because these two factors decide the value of the car and in an event of failure of repayment, the financial institution has the right to seize the car.