Buying our own car is an aspiration many of us are able to meet quite early in our professional lives, due to the availability of numerous vehicles within various price ranges, and easy loans on offer to finance them.
Buying our own car is an aspiration many of us are able to meet quite early in our professional lives, due to the availability of numerous vehicles within various price ranges, and easy loans on offer to finance them. However, for a hassle-free loan process, ensure you follow these steps, which will not only reduce the processing time, but also may help you save money.
Fetch your credit score
A credit score is a three-digit number, which represents your creditworthiness basis your credit history. It is part of your credit report, a thorough report with record of every time you have applied for any kind of loan or credit card, and how well have you repaid it. Any score above 750 is considered good and increases your chances of getting your loan approved. On the other hand, a poor score, anything below 600, makes one a ‘risky’ prospect for lenders and may get your application rejected or be offered a high interest rate.
Before applying for loan, fetch your credit report online for free from the credit bureau or a lending marketplace. If your credit score is poor, you may consider postponing your decision to purchase a car and focus on building the score. This will also help you detect any errors in your credit report that may have been pulling your score down.
Arrange down payment and documents
A few banks expect you to pay up to 20% of the car’s value while they make the remaining payment. You must make sure that you have funds before you submit the application. Though there are a few lenders who provide up to 100% funding, it is advisable to fund some part of the cost yourself. Higher the amount that comes out of your pocket, the lesser you would need to borrow and repay along with the interest, which generally goes as high as 16% per annum.
For the documents you must refer to the bank’s website and keep them ready. Usually, banks ask for your address and identity proofs, letter of employment from your organisation, salary slips, ITR.
Check income and work history
Your income and work history may not immediately dictate whether you will get the approval, but they certainly reveal the loan terms your lender is willing to offer. However, some banks have certain eligibility criteria that one must meet, to get a loan application approved. For example, if you are a salaried individual, you may require to be employed for no less than two years to be eligible for car loan. Likewise, self-employed individual in proprietorship firms or private or public limited companies may need to show a total annual turnover of not less than `3,00,000 to be eligible for car loan.
Choose loan amount basis repayment ability
One of the thumb rules of taking a loan is to borrow only what you can repay, without compromising on your life goals or lifestyle. Before choosing the amount of your car loan, check how much can you repay in the form of EMIs, without stretching your finances. A higher loan tenure usually brings down your EMIs, but it also increases your interest outgo. Use online EMI calculators to take a decision on loan amount and loan tenure.
Apply with a co-applicant
Applying for a car loan with a co-applicant can assist to meet the standards of car loan approval. Including a co-applicant means that the income of the co-applicant is merged with your income. This increases your creditworthiness, sometimes assisting you to avail a better rate of interest. Therefore, you might ask your family members, parents or spouse to co-sign the car loan agreement with you.
The writer is business head, Payment Products, Paisabazaar.com