About to take a car loan but viewing various interest rates from different lenders? When you hunt for the best credit chances are you may have visited some websites, done comparison, or visited the showrooms.
You also must have come across statements such as, ‘car loan interest rate starting at 2.5 per cent’ and so on. It leaves you in a dilemma as to which rate to go for. The answer to this depends on numerous factors. Some are within your control while others fall to the will of the lender:
1) Credit report: It is one of the most critical determinants of the interest rates. For any loan, lenders give preference to those who boast of high credit score. The report is a history of your payment behaviour concerning credit card bills, existing EMIs, and others. If there is default in any, the report reflects negative remarks which could lead to rejection of the loan application. The score should be 750 and above.
2) Income level: Lower the debt-to-income ratio the better. It proves that you will not have difficulty in paying the EMIs to the lender. The possibility of default also decreases. Lenders will have faith in your repayment capacity and the chances of getting lower car loan interest rate increases.
3) Down payment: Ensure to make a higher down payment, as the bank will lend you a lower loan amount. The risk levels pertaining to the bank also decreases. It portrays your sound financial position, and the interest rates drop as well.
4) Tenure: Auto loans are usually given with a duration of seven years. Banks generally levy a higher interest rate for lengthy tenures and vice versa. So, use the EMI calculator to make an informed decision.
5) Car type: Your four-wheeler is a collateral when you take the credit. You have to keep it with the lender until the end of the tenure. In case you fail to repay the amount, they will seize the asset. Therefore, it is essential to consider the vehicle model as it determines your loan interest rate. Reputed models have higher resale value than less popular ones.
6) Car age: The number of years of the vehicle is also another crucial factor. If you take a used car, it can be risky for the bank. Hence, they offer higher interest rates to them. The car finance is available for lesser rates for new ones.
Most of the lenders approve of the loan within a day. You can apply for them online as well for faster approvals and disbursement.