Need a car loan?
Your dream car is just a loan away
Get the car you want without the wait
Are you planning to buy a new or used car, but don’t have the full amount available upfront? ADVANCE MONEY provide an excellent opportunity to finance your vehicle and spread the cost over an extended period. If you’re considering applying for loan, Advancemoney.in is here to help. In this detailed guide, we’ll cover everything you need to know about car loans, from eligibility criteria to the types of loans available and the benefits of financing your car through a loan. By the end of this guide, you’ll have a thorough understanding of the loan process, helping you make informed decisions.
What is a Car Loan?
A car loan is a financial product provided by banks, financial institutions, or non-banking financial companies (NBFCs) to individuals who wish to purchase a vehicle but do not have sufficient funds to pay the full amount upfront. When you take out a loan, you borrow money from the lender, which you repay in monthly installments over a fixed period.
Typically, these loans are secured loans, meaning that the car you purchase serves as collateral. If you fail to repay the loan, the lender can repossess the car. Car loans are a convenient way to finance a vehicle, whether it’s new or used, and are available with flexible terms, including varying loan amounts, tenures, and interest rates.
What is the Purpose of a Car Loan?
The primary purpose of a car loan is to make it easier for people to own a vehicle without having to pay the entire cost upfront. By spreading the repayment over months or years, individuals can drive away with their dream car and pay for it in manageable installments. Car loans are particularly useful for individuals who do not have immediate access to large sums of money, but need a car for personal or professional reasons.
How Does a Car Loan Work?
It functions by offering you a lump sum amount of money that covers a portion of the car’s price. In return, you agree to repay this amount, along with interest, over a period of time, typically 12 to 60 months.
Key Components
- Loan Amount: The total amount of money you borrow. This is typically a percentage of the car’s total cost (usually 80-90%).
- Interest Rate: The rate at which the lender charges interest on the borrowed amount. This can be either fixed or floating.
- EMI (Equated Monthly Installment): This is the fixed monthly payment that consists of both principal and interest. The amount remains constant throughout the loan tenure.
- Tenure: The loan repayment period, usually between 12 months and 60 months. The longer the tenure, the smaller the EMI, but it may lead to a higher overall interest payment.
- Down Payment: This is the upfront payment you make towards the purchase of the car. It usually covers 10-20% of the car’s value. The higher the down payment, the lower your loan amount will be.
Loan Repayment Structure
When you take out a loan, the repayments are made through EMIs, where the interest is paid off in the earlier months of the loan. As time progresses, the amount paid toward the principal increases, and the interest portion decreases. This structure is often referred to as an amortizing loan, and it’s standard in the case of most car loans.
In the early stages, the EMI is primarily used to cover the interest, while in the later stages, the principal amount reduces more significantly. This is why it’s important to ensure that you can afford the EMI each month to avoid any defaults or penalties.
Types of Car Loans
IT come in various forms depending on the type of vehicle you want to purchase, as well as your personal needs. Below are the two most common types of car loans available:
New Car Loans
A new car meant for individuals looking to buy a brand-new car directly from a dealership. Since the vehicle is new and hasn’t been used before, lenders tend to offer better terms on new car loans, including lower interest rates and higher loan-to-value ratios (LTV). Lenders generally perceive new cars as less risky because they have a higher resale value.
- Interest Rates: Usually lower compared to used car loans.
- Loan Amount: Higher loan amounts are typically offered.
- Loan Tenure: Usually up to 60 months.
Used Car Loans
It is meant for individuals who are purchasing a pre-owned car. While the process of obtaining a used car is similar to that of a new car loan, the terms tend to be slightly less favorable. The primary reason for this is that used cars have lower resale values, making them riskier assets for lenders.
- Interest Rates: Higher compared to new car loans.
- Loan Amount: The loan amount may be lower, typically covering 70-80% of the car’s value.
- Loan Tenure: Usually shorter, ranging from 12 to 36 months.
Both new and used car loans can be secured or unsecured. Most car loans are secured, meaning that the car itself serves as collateral.
Eligibility Criteria
Before applying for a loan, you must meet certain eligibility criteria set by the lender. The requirements may vary slightly from one financial institution to another, but generally, the following criteria apply:
1. Age Limit
Applicants should generally be between 21 and 60 years of age. However, some lenders may allow applicants who fall outside this range depending on their policies.
2. Income
Lenders want to ensure that you have a stable source of income to make the monthly repayments. Both salaried individuals and self-employed individuals can apply for loans, but their income levels and proof of income need to meet the lender’s requirements.
- Salaried Individuals: A stable income with a minimum monthly salary requirement, typically in the range of ₹15,000 to ₹30,000, depending on the lender.
- Self-employed Individuals: Self-employed individuals need to provide proof of income through bank statements, income tax returns (ITR), and other relevant documents.
3. Credit Score
Your credit score is one of the most important factors in loan approval. A higher credit score (750 and above) increases your chances of loan approval and may also allow you to secure a loan at a lower interest rate. A poor credit score (below 650) may result in either loan rejection or a higher interest rate.
4. Employment Status
Lenders prefer borrowers who have a stable employment history. For salaried individuals, lenders typically require at least 1 to 2 years of employment with the current employer. Self-employed individuals will need to provide proof of business stability.
5. Down Payment
Lenders typically require a down payment of 10-20% of the car’s value. A larger down payment reduces the loan amount and can improve your chances of approval.
Documents Required
When applying for a car loan, you’ll need to submit several documents to verify your identity, income, and employment status. The common documents required for a loan application include:
Proof of Identity:
Government-issued identification documents such as:
- Aadhar Card
- PAN Card
- Voter ID
- Passport
- Driving License
Proof of Address:
Documents that validate your current residential address, such as:
- Utility bills (electricity, water, phone)
- Passport
- Aadhar Card
- Rental agreement
Proof of Income:
- Salaried Individuals: Recent salary slips, bank statements for the last 3-6 months.
- Self-employed Individuals: Income tax returns for the last 2-3 years, business bank statements, and financial statements of the business
A great car deserves a great loan
Benefits
It come with several benefits, making them an attractive option for individuals who want to own a vehicle without paying the full price upfront. Here are some of the key benefits:
Lower Interest Rates
Compared to personal loans, car loans generally come with lower interest rates because they are secured loans. Since the car serves as collateral, lenders are at a reduced risk, which allows them to offer more favorable terms.
Flexible Loan Tenures
Its tenures are flexible, allowing you to choose a repayment period that suits your financial situation. You can opt for a shorter tenure to pay off the loan faster, or a longer tenure to reduce the EMI.
Quick Processing and Approval
Its are processed relatively quickly. With online applications, you can expect approval in a matter of days, and in some cases, the loan amount is disbursed the same day.
How to Apply for a Car Loan through Advancemoney.in
Applying for a loan through Advancemoney.in is simple, and we make the process as straightforward as possible. Here’s how you can apply for a loan:
1. Visit the Website
Visit Advancemoney.in and navigate to the car loan section.
2. Fill Out the Application Form
Fill in basic details such as your name, contact information, income, and the car model you wish to buy. Make sure to provide accurate information.
3. Upload the Required Documents
Submit the necessary documents (identity proof, income proof, etc.) via the online portal. This helps us assess your eligibility and process your application faster.
4. Loan Approval
Once the documents are submitted, our team will evaluate your application. You will receive a decision in a few business days.
5. Loan Disbursal
If approved, the loan amount will be disbursed to either your bank account or the car dealership, depending on your arrangement.
Let’s make this journey together – you drive the car, and we’ll take care of the loan
How to Calculate Your Loan EMI
It’s essential to know how much you will be paying each month before applying for a car loan. The EMI for a loan depends on the loan amount, interest rate, and tenure. You can calculate your EMI using the following formula:
EMI=P×R×(1+R)N(1+R)N−1EMI = \frac{P \times R \times (1 + R) ^ N}{(1 + R) ^ N – 1}
Where:
- P = Principal loan amount
- R = Monthly interest rate (Annual rate / 12)
- N = Loan tenure (in months)
Alternatively, you can use online EMI calculators, which simplify the process. Advancemoney.in also offers an EMI calculator to help you determine your monthly repayment amount.
Factors Affecting Your Loan Approval
Several factors impact your loan approval process, including:
Credit Score
A high credit score improves your chances of approval and can lead to better interest rates. A score of 750 and above is typically ideal.
Income and Employment History
Lenders want to see that you have a reliable income source to make timely repayments. Your employment status and income level play a significant role in approval.
Down Payment
A larger down payment reduces the loan amount you need to borrow, making it easier for lenders to approve your application.
Car’s Value
Lenders assess the value of the car being purchased, as it acts as collateral for the loan. A higher-value car may lead to better loan approval terms
Common Loan Mistakes to Avoid
Here are some common mistakes to avoid when applying for a loan:
1. Not Considering the Total Cost
Always factor in additional costs such as insurance, maintenance, and taxes. A car loan covers only the vehicle’s price, not these additional expenses.
2. Ignoring Loan Terms
Make sure you understand the terms of the loan, including the interest rate, EMI schedule, and tenure.
3. Not Shopping Around for the Best Deal
Different lenders offer varying interest rates, processing fees, and loan terms. Always compare options to get the best deal.
A car loan is a convenient and efficient way to finance the purchase of your dream car, whether it’s new or used. By understanding the various loan types, eligibility criteria, and repayment options, you can make an informed decision that suits your financial situation. If you’re ready to take the next step, apply for a car loan today with Advancemoney.in and drive home your new car with confidence