Car Loan Explained - Car Finance Decoded

In order to get the best car finance offer prevailing in the market, you need to select a vehicle that fits your budget. Then you have to provide down payment as allowed by your budget. These two factors are responsible in getting your car loan approved and deciding the EMI and the rate of interest you would be paying.


Given here are the 4 main factors that decide how a bank or NBFC(Non Banking Finance Company) decides to give you an auto loan offer

1. Vehicle selection: cost, age and the segment of car such as A, B, C or D segment
2. Applicant's information: employment, residence, and income information
3. Credit history or CIBIL:information contained in your credit file or your CIBIL Score
4. Down payment that you decide on:cash that you can pay - this may vary as per your profile and segment of the car

To get the best car loan offer, you must select a vehicle that fits your budget. Then provide the best possible information as per your banking and finance history (Never conceal any glitches such as cheque bounces and non payment of credit card balance etc.) and then think of paying as much down payment as possible. These  factors increase likelihood of approval, also they cut on the time required for auto loan sanctioning, and reduce your monthly payment.

Factors affecting your monthly payment. Your monthly payment is determined by three major factors listed below in order of impact:

1. Amount financed
2. Term or length of contract
3. Annual Rate of Interest 

Amount financed depends on your profile and the amount of Down Payment you are willing to make. Higher the down payment lower would be the EMIs. 

Term or length of Loan depends on you, again. You may go for 3, 4 or 5 years for paying the home loan. Some of the banks in India also offer Car Loan for a period of 7 years. However, the rate of Interest keeps on rising as term for payment increases. 

Annual Rate of Interest depends on your profile - Usually the rate of interest is higher for the self employed as compared to the salaried people. Again, rate of interest may be lower for a government employee than that for a person working in a private sector company. Also, in Private sector the rate of interest is higher for the employees of a company not so well known or falling under a category of the banks that comes lower in the order than those coming higher in the rank or category.

So, you can be almost half sure as to what rate of interest you will get for Car Loan even before you apply for it.