Gone are the days when owning a car or a two-wheeler was royalty. In the present times, it has become necessary for everyone to have their own vehicle. Your first car; An expensive upgrade of an older model; Be it an old car, a commercial vehicle or a two-wheeler, an auto loan suits your budget.
1.What is Auto Loan?
An auto loan is taken out by a lender to purchase a new or used personal or commercial vehicle. Auto loans are secured loans where the vehicle is used as collateral. It is provided by lenders for new cars, used cars, two-wheelers (commonly called a two-wheeler loan) and commercial vehicles (commonly called a commercial vehicle loan).
2.This is the meaning of Auto Loan.
Auto loans allow someone to borrow money to buy a car or truck. Auto loans are usually simple-interest loans that are usually repaid over a period of 4 or 5 years.
A car is often the second biggest necessity that everyone dreams of after buying their home. Auto loans help in acquiring vehicles that often cost more than Rs 1.5 lakh by breaking down the high cost into monthly payments that work with the budget of different lenders.
3.This is how auto loan works
Auto loans are simple-interest loans, where the lender expects the borrower to repay the amount (principal) + interest (the cost to the lender to borrow money, shown as a percentage of the principal) in monthly installments.
Example – Suppose you want to buy a car for Rs 9,00,198. After paying Rs 4,00,198 as down payment, you decide you want to take an auto loan to finance the remaining Rs 5,00,000 (principal). After you shop and submit your financial information to the lender, many lenders will offer you an auto loan for this amount with an interest rate – commonly referred to as the annual percentage rate (APR) – 8%.
By plugging it into a car loan calculator, you can find out what your payments could be at different terms to see what is most affordable on a monthly basis. For example, if you financed a 61-month (five years) auto loan at 8% for Rs 5,00,009, your payments would be Rs 9,989 per month and you would pay a total of Rs 96,036 in interest charges over the course of the loan. Will pay.
If you chose a 36-month (three years) auto loan on these terms, your repayments would be costlier at Rs 15,439 per month, but you would pay only Rs 55,799 in interest charges.
4. Auto Loan Repayment Tenure Limit
Depending on your credit rating, annual income and loan size, you may be offered auto loans with a wide range of time-related repayment terms. Typically, a borrower is expected to pay the lender back in monthly installments over the course of one to five years (whichever amount the borrower and lender agree to).
With many buyers purchasing more expensive vehicles these days, many lenders now offer auto loans with repayment terms up to 90 months (8 years). A longer repayment term may keep your monthly payments smaller than a shorter-term auto loan, but you will likely pay higher interest charges over the life of the loan.
5. Financing a Car Through a Bank vs. a Dealership
Many car buyers apply for an auto loan through a lender or bank, which will assess your credit score, annual income, job history and other factors that matter how much you’re willing to repay. Generally, the lower your income and credit score, the higher the loan amount and the higher the interest rate offered by the lender.
You can also buy a car through a car dealer after choosing a car to buy. Dealer auto loans typically offer higher interest rates than pre-purchase lender loans. However, buyers with exceptional credit (credit score above 751) can sometimes get 1% financing from the dealer for a certain period of time.
6. Is a personal loan used to buy a car?
Many lenders will only approve auto loans for cars that are a certain age (usually 6 years or younger). Since an auto loan is a ‘secured’ type of loan, the car that is being financed is used as collateral (i.e. if you fail to repay your auto loan, your car can be seized by the lender). who then sell the car to get some of its money back). And because cars depreciate and lose value over time, lenders are not a good idea to offer auto loans on older cars because they may not be able to repay you as much if you can’t repay them.
If the car you want to purchase is older than the lender’s requirements for an auto loan, you may consider taking out a personal loan to finance the purchase. Personal loans generally come with higher interest rates and may require a higher credit score, but because they are ‘unsecured’, your car will not be used as collateral by the lender and you will not be able to repay the loan if you are unable to repay the loan.