Car Loans in 2022: All You Need To Know Before Buying A Car on Finance

Know everything about car loans in India. Learn the difference between fixed and floating car loans, know the factors that influence car loan interest rates and also read answers to the frequently asked car loan questions.

car loan in 2022 all you need to know

Car Loan Interest Rates: Fixed vs Floating

A vehicle loan’s interest rate might be either fixed or variable. A fixed interest rate is one that remains constant during the term of the loan. Market fluctuations have no effect on fixed interest rates. A variable interest rate, on the other hand, fluctuates constantly in reaction to changing market conditions.

Borrowers often resort to fixed interest rates when the financial market isn’t functioning properly. You should be able to establish an interest rate for your vehicle loan at your leisure. If you believe that interest rates will rise soon or that the financial market will not go below a certain level, you should choose a fixed interest rate.

Fixed interest rates are more expensive than floating interest rates. Market variables cause floating rates to change. A floating interest rate is impacted by changes in the base rate or the MCLR. As a result, if the rate rises, your auto loan EMIs may rise as well, which might be inconvenient for you. When the rate falls, though, you might save money for a long time. The biggest disadvantage of floating interest rates is that they make it difficult to keep to personal financial plans since rates fluctuate.

Factors that Influence Your New Car Loan Interest Rate

Credit Score — If your credit score is above 750, lenders are more likely to provide you with a low-interest vehicle loan. This is because a good credit score tells a lender that lending to you is less hazardous because you’ve been on time with your payments in the past, as demonstrated by your credit score. So, if you want a cheaper interest rate on your auto loan, maintaining a strong credit score is a smart idea. A strong credit score may also provide you with extra perks such as expedited approvals and pre-approved deals.

Repayment Period – The length of time you pay back your auto loan will affect your interest rate. Your EMIs will be cheaper if you pick a longer-term, but you will pay more interest over the course of the loan. On the other side, while the EMIs will be greater, you will be able to pay off the loan sooner if you pick a shorter term. Lenders will usually charge a cheaper interest rate on a vehicle loan if you pick a shorter term because the loan will be paid off sooner.

Loan Amount – The number of auto loans you take out will have an impact on the interest rate you pay. You may be able to acquire a cheaper interest rate if you choose a larger loan amount, and vice versa. This, however, will differ from one lender to the next.

Relationship with the lender — Lenders with whom you have a strong payment and transaction history may provide vehicle loans with reduced interest rates. As a result, evaluate the interest rates given by your current lender before approaching other lenders for vehicle loans.

Income – If your income is larger, you may qualify for a lower interest rate because a higher income suggests a greater ability to repay.

car loan interest rates FAQs

Interest Rates on Car Loans: Frequently Asked Questions

Is it feasible to negotiate a lower interest rate with the lender on my vehicle loan?

You may negotiate a reduced interest rate on auto loans if you have an excellent credit score, a greater salary, and a solid connection with the bank. However, whether or not to honour the request will be totally at the discretion of the bank.

Will auto loan interest rates be fixed or variable?

On auto loans, lenders provide both fixed and adjustable interest rates. Fixed interest rates imply that the interest rate will remain constant during the loan term, whereas floating interest rates mean that the interest rate will fluctuate depending on a variety of circumstances. Check with lenders to see what sort of interest rates they provide before taking out a vehicle loan. 

My credit score is 700. Will it affect my qualifying for a vehicle loan or the interest rate I pay?

Your credit score is the first thing lenders look at when you apply for a vehicle loan. Most lenders prefer to lend to those who have a credit score of at least 750. With a low credit score, getting a vehicle loan may be difficult, and if you do get one, you may be charged a higher interest rate.

Will a larger down payment result in a cheaper interest rate?

You’ll only need a lesser vehicle loan if you put down a greater down payment. You may be able to get a lower interest rate because you will be repaying the loan sooner.

Is there a lender that offers women customers reduced interest rates on auto loans?

Yes. Some lenders provide a discount on auto loan interest rates for female applicants.

Is the interest rate on a car loan affected by the kind of vehicle?

The kind of automobile has no bearing on the interest rate on a car loan, but the price of the car does. Luxury automobiles, for example, may have a cheaper interest rate because the loan amount is often bigger. However, some lenders may demand a higher interest rate for a larger loan amount.

Will making a prepayment lessen my vehicle loan interest rate?

Yes. Because a prepayment decreases the overall loan amount, the lender may give you a cheaper interest rate if you make one. However, before you prepay your loan, make sure you fully grasp the process since lenders may charge you a penalty. Also, whether or not you should make a prepayment depends on a variety of criteria, including the interest rate, the stage of your loan payment, and so on.

What are my options for obtaining a car loan with a reduced interest rate?

You may negotiate a lower interest rate on a vehicle loan if you have a good credit score (above 750), make a larger down payment, pick a shorter payback term, and have a regular source of income. The majority of lenders will gladly acknowledge your request. However, before you start negotiating with other lenders, double-check with your current one. They are likely to acknowledge your request because they are already aware of your transaction history.

Should I choose a fixed or adjustable interest rate?

If you pick a vehicle loan with a fixed interest rate, you will pay the same amount of interest throughout the loan term. If you choose a variable rate of interest, the interest you pay may be more or lower depending on whether the interest rate rises or falls. If you believe there is a probability that the interest rate may rise in the future and you do not want to take any chances, a fixed interest rate is advised.

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