Owning a vehicle is a common desire for many people, as it provides a safe and convenient means of transportation without the hassle of public transportation. And to make this dream a reality, many people opt for an automobile loan when purchasing a vehicle. But, it is quite a complicated task to calculate the interest rate and understand its equation.
Therefore, before opting for auto-financing, it is important to understand the concept of vehicle loan interest rates to make a well-informed decision. Hence, this comprehensive guide about vehicle loans will help you understand the process and factors to consider while opting for a gold loan.
So, let’s begin.
What is a Vehicle Loan Interest Rate?
For any vehicle loan, the interest rate is the additional amount you pay on top of the principal amount. While taking a vehicle loan, an individual doesn’t require security as the lender hypothecates the vehicle as collateral.
Factors Affecting a Vehicle Loan Interest Rate
- CIBIL Score
A good CIBIL score reflects one’s good repayment history and is considered less risky by lenders. Hence it is a crucial factor that can help one secure a vehicle loan at low-interest rates.
- Loan Term
Tenure of your length affects vehicle loan interest rate, as short-term loans tend to be considered less risky and thus have low-interest rates. While long-term loans are considered to pose more risk, and that’s why they have higher interest rates. So, choosing a short-term loan to secure low-interest rates is a better option.
- History of Income
A stable income tends to pose less risk to lenders and ensure the security of repayment, and this is why a borrower with a stable income will get a vehicle loan at low-interest rates compared to a person with an unstable income.
- Type of Vehicle
There are two types of vehicle loans for cars: i.e. a new car loan and a pre-used car loan. And it is important to note that a new car loan has lower interest rates than the pre-used one. Thus, it is important to consider the type of car when opting for a car loan.
- Down Payment
It is important to know that making a larger down payment will help secure a vehicle loan at lower interest rates, as it reduces the amount one needs to borrow and consequently brings down lenders to less risk. Other than this, you can even look at the savings account interest rate; if you’re willing to have a savings account.
Documents Required for a Vehicle Loan
- Identity Proof (PAN Card, Adhar Card, Driving License, etc.)
- Age Proof(Age of the applicant of the loan must have to be above 21 years, and for co-applicants age, the criteria are above 18 years of age)
- Income Proof(Salary slips, bank statement of three months, and ITR)
- Signature
- Recent Photographs
Conclusion
Understanding Vehicle loan interest rates are essential for anyone considering auto-finance. And one can save significant money on their loan by comprehending these factors and employment strategies to secure lower interest rates. Also, note that evaluating different lenders and their terms and conditions is essential before making any decision.
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