Purchasing a new automobile is one of the biggest purchases that most people make in their lives, and most individuals go for a loan to do so. In this article, we have mentioned information for those car buyers who are unfamiliar with the paperwork, bank fees, and other requirements to buy their favourite car.
It is true all car buying things these days start with the selection of the right bank. In India, people prefer nationalized banks as their interest rates are cheaper than private banks, but it may take comparatively more time for loan disbursement. The private banks, however, may charge a little higher interest rate but the process of loan processing to disbursement is a bit easier. But just discussing the type of bank is not all. There are a lot more things that you need to know. Let’s go more into the details of knowing what all are the other important things to get a car loan.
1. Are you eligible or not?
You must first determine the bank’s qualifying conditions before applying for a loan. Self-employed, professionals, salaried workers, high net worth persons, those involved in business, commerce, or trade, elderly citizens, company directors, farmers, pensioners, staff members, and former bank employees (excluding those who were forced to retire or sacked) are all eligible. Undivided Hindu households are discouraged from taking out loans. Loans are only available to NRIs in conjunction with permanent resident Indians if both parties are under the age of 65 at the time of application.
2. How much do you think you’ll be able to get?
Car loans are granted depending on the individual’s salary, the car type, and the borrower’s previous loan payback history. In general, it equates to 2.5 to 3 times a salaried professional’s yearly wage or six times a self-employed professional’s annual income, as determined by income tax returns from the previous three years. Banks finance 75-95 percent of a new car’s ex-showroom price. If your income is insufficient to obtain the loan amount you need, you may combine your income with that of a spouse or family to obtain a larger loan amount.
3. Hidden expenditures are an added expense
Only when you factor in extra fees, the true cost of your auto loan revealed. A processing charge or pre-payment cost for a car loan, for example, will be different from a processing fee or pre-payment fee for a personal loan. This is a list of all fees that are assessed before a loan is given.
4. Charges for processing
A processing fee is charged by the bank, which is withdrawn from your loan before it is disbursed. For vehicle loans, this is usually expressed as a percentage of the loan amount and ranges from 0.1 to 1%. A one-time cost of Rs 1,000 is imposed for loans up to Rs 25,000, while the price for loans between Rs 25,000 and Rs 25 lakh is 1.1 percent, with a maximum limit of Rs 5,000 and a minimum of Rs 1,500. The cost is 0.25 percent of the loan amount, although it should not exceed Rs 15,000 for loans exceeding Rs 25 lakh.
5. Fee for making a deposit
When you pay off your loan before the end of the term, most banks charge you a penalty. This pre-payment penalty is imposed to compensate the bank for missed interest income. In theory, you should choose the bank that that doesn’t charge a pre-payment charge or has minimal pre-payment charges.
6. Late payment penalties
If you miss your monthly EMI deadline, the bank will charge you a late payment fee of 1 to 2%, which will be added to the next EMI you pay or the EMI you pay after the due date has passed.
7. Charges for returned cheques
If your account is insufficiently funded and a post-dated cheque is presented to the bank, the bank may levy a penalty ranging from Rs 200 to Rs 450.
8. Fees for documentation
Documentation fees, which vary from Rs 250 to Rs 500, are charged by banks for the verification of the different papers you provide with your loan application.
9. Documents necessary for the purchase of a new automobile
Only three documents are required for car loans: evidence of identification, proof of domicile, and proof of income. Passports, driver’s licenses, voter identification cards, and PAN cards are all acceptable forms of identification. If you live at the same address as mentioned in these documents, a passport, driver’s license, ration card, or voter ID will suffice as evidence of residency. If you live somewhere other than the address listed on your ration card, passport, or voter ID, you can show utility bills (electricity or phone) as proof of residency. Salary slips, Form 16 for the previous financial year, and bank statements for the past six months are all acceptable forms of income verification for salaried employees. Self-employed persons must furnish their prior two years’ IT returns.
10. Documentation for a car loan
There is a few more paperwork to complete before you drive away with your new automobile. These documents include a power of attorney, which authorizes the dealer to register the car in your name at the RTO.
11. Alternatives to paying in advance
No one wants to be in debt for a long time. Rather, one would search for strategies to reduce the debt period. Prepayment is the only method to accomplish this with auto loans. However, most banks will impose a charge if you pay in advance. Take loan from a bank that charges the least interest. You can also prefer a bank that permits you to pre-pay.
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