An auto loan is a type of personal loan used to purchase a car. It is also called a car loan or auto financing. This type of loan has the advantage of being simple, fast, and easy to get. If you need a vehicle but do not have enough savings to purchase a vehicle upfront, then an auto loan could be a helpful form of finance, as long as you can afford the repayments.
An auto loan is a type of secured loan, which means that the car or an automobile you buy is collateral for the loan. If you fail to make payments on time, a lender might repossess your car and sell it to pay off the loan. Make sure you can afford your monthly income before buying a car.
Types of Auto Loans
You can use an auto loan to purchase a new or used vehicle. Usually, new-vehicle loans have lower rates than used-car loans and sometimes come with special incentives.
Features of Auto Loan
- Loan Length: An auto loan typically lasts three to seven years, i.e., 36 to 84 months. A longer-term loan typically has a lower monthly payment than a shorter-term loan, but you pay more money in finance charges over the life of a longer-term loan. For example, you might have a Rs 15,000 monthly payment on a 36-month loan or a Rs 10,000 payment on a 60-month loan, but the 60-month loan will cost more in interest. Another point is that the interest rates charged on longer tenures are higher than on shorter loan tenures. For example, lenders typically charge a higher interest rate of around 0.5% to 1% on a car loan for a longer term. This is their way of compensating for the additional credit risk that the banks take on the borrower.
- Down Payment: This is a payment you make upfront toward the cost of the vehicle. The down payment helps lower the overall amount you need to finance — which can mean lower monthly payments.
- Zero percent Financing: Zero percent financing is an offer provided by a few automobile manufacturers in collaboration with the lender. Under this plan, the automobile manufacturer is responsible for paying back the interest on the auto loan instead of the borrower.
- Tax benefits in an auto loan: Unlike a home loan, an auto loan does not provide any tax benefit.
- NOC: Lenders who provide car loans allow the vehicle to be sold only when the loan has been paid off in full. This is because you need to get a NOC from the bank or the financial institution before selling the vehicle.
How to Get the Best Auto Loan Rates?
A car is a significant purchase for most people. This is why getting the best auto loan rates is essential. The more you know about what you want, the better your chances of getting the best rate.
Many factors go into determining the best auto loan rates available to you. These factors include your credit score, income, and money saved up for a down payment on a car.
When looking at different auto loan rates, it’s essential to compare them based on APR (annual percentage rate). APR tells us how much interest we will pay over one year on our car loan.
How to Apply for an Auto Loan Online?
Applying for a car loan online is a convenient way to get approved for your loan. It saves you time and effort by not having to go to the dealership or bank in person. You can apply for an auto loan online with just a few clicks of the mouse.
There are many benefits of applying for an auto loan online such as:
- No need to go in person to the dealership or bank.
- Save time.
- Save money on fuel.
Conclusion: Choose the Auto Loan As Per Your Need
Auto loans may be used to buy a car or to trade up to a more expensive vehicle. Getting a loan is not as easy as it might appear because lenders require that you meet specific criteria to qualify.
Lenders will want to see that you have a steady income and can repay the loan. They will also like to offer competitive interest rates to make the deal seem more attractive. Therefore, your credit score can be one of the most critical factors in determining if an individual is eligible for certain loans and what interest rate they’ll pay.