Buying a car on loan has become relatively easy in today’s times thanks to the various bank and NBFC lenders who offer loans at competitive interest rates. It is also possible to do an easy, comparative analysis of the various loans offered by the various lenders, simply by doing a quick google search.
However, there are certain factors that are also in the control of the borrower which can affect the interest rates charged on car loans to a great extent. Let’s find out what they are:
The credit history of the borrower: Lenders today ask borrowers to provide their CIBIL or credit scores while considering a loan application. Borrowers, who can prove their credit worthiness with a credit score of 750 points and above, are more likely to get their loans sanctioned. Such individuals can also negotiate the car loan interest rate offered to them. If your credit scores are less than 750 points, you may have to pay a higher rate of interest on your loan.
The income of the borrower: You should be able to convince the lender that you have the capability to repay the loan. As such, your income is a detrimental factor that affects the loan taken. Lenders are more than willing to disburse loans to individuals with low debt-to-income ratios since it shows them that borrowers would not default on EMIs. The income of the borrower serves as an assurance to the lender that the loan would be repaid within the chosen tenure.
The down payment: The size of the loan you take is another factor affecting the interest rate. If you opt to make a higher down payment, you are automatically reducing the size of the loan. The higher the down payment you make on your car loan, the lower the interest rates offered by the lender. Opting for a higher down-payment assures the lender that their risk is reduced considerably, while also assuring them of your strong financial position.
The tenure of the loan: Loans for cars are offered for up-to 7 years, so that borrowers can pay them off in affordable equated monthly instalments or EMIs. However, you can get a lower rate of interest if you choose lower loan tenure. Ideally, you can get the best interest rates if you opt for a mid-term, 3-4 years tenure loan.
The age and model of the car: The model and age of the car is also considered by lenders when the interest rate on the loan is determined. The latter is especially true in the case of used car loans. The rate of interest offered on brand new cars, especially new models marketed aggressively by auto dealers, is comparatively lower since there is a sales agenda attached to it. In case of used cars, the interest rates increase according to the age of the car. Interest rates of older cars are higher.
However, there are certain factors that are also in the control of the borrower which can affect the interest rates charged on car loans to a great extent. Let’s find out what they are:
The credit history of the borrower: Lenders today ask borrowers to provide their CIBIL or credit scores while considering a loan application. Borrowers, who can prove their credit worthiness with a credit score of 750 points and above, are more likely to get their loans sanctioned. Such individuals can also negotiate the car loan interest rate offered to them. If your credit scores are less than 750 points, you may have to pay a higher rate of interest on your loan.
The income of the borrower: You should be able to convince the lender that you have the capability to repay the loan. As such, your income is a detrimental factor that affects the loan taken. Lenders are more than willing to disburse loans to individuals with low debt-to-income ratios since it shows them that borrowers would not default on EMIs. The income of the borrower serves as an assurance to the lender that the loan would be repaid within the chosen tenure.
The down payment: The size of the loan you take is another factor affecting the interest rate. If you opt to make a higher down payment, you are automatically reducing the size of the loan. The higher the down payment you make on your car loan, the lower the interest rates offered by the lender. Opting for a higher down-payment assures the lender that their risk is reduced considerably, while also assuring them of your strong financial position.
The tenure of the loan: Loans for cars are offered for up-to 7 years, so that borrowers can pay them off in affordable equated monthly instalments or EMIs. However, you can get a lower rate of interest if you choose lower loan tenure. Ideally, you can get the best interest rates if you opt for a mid-term, 3-4 years tenure loan.
The age and model of the car: The model and age of the car is also considered by lenders when the interest rate on the loan is determined. The latter is especially true in the case of used car loans. The rate of interest offered on brand new cars, especially new models marketed aggressively by auto dealers, is comparatively lower since there is a sales agenda attached to it. In case of used cars, the interest rates increase according to the age of the car. Interest rates of older cars are higher.
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