Types of car loans
Car loans can make buying that dream car, whether it be a necessity or for leisure, way simpler. Rather than paying up a rather large amount of money up front, which could take years of savings, car loans can help you get the car you want/dream immediately and pay for it in easy installments. Let’s take a look at the types of car loans you can avail:
1. New Car Loans - These are loans offered on brand new cars, at brand dealerships fresh from the factory floor. New cars offer more peace of mind to an owner as service, spare parts and brand-backed warranties will be easily available.
2. Used Car Loans - These are loans offered on used cars, from dealers or individuals. Used/pre-worshipped cars usually cost much less than when they were brand new, often offering more premiumness/features/performance than new cars of the same price.
3. Loan Against Car - Also called refinancing, these loans can help you lower your monthly payments by taking out a new loan at a lower interest rate or extending your repayment duration.
You can avail both New Car Loans and Used Car Loans on online platforms like CarWale, which offer the added benefit of Insta Pre-Qualified Loan, comprehensive loan comparison tools and more without needing to step out from your home.
Eligibility Criteria for Loans
Banks and financiers look at various aspects before offering a car loan, these include:
1. Age, with a minimum and maximum limit
2. Monthly income with history of stable employment or business
3. Your credit history report. A car loan enquiry on CarWale gives you a free credit report courtesy Experian, which should help you get the best deals.
4. Your past relationship with the particular bank/financier
5. Type of car - used or new
6. Stability of residence, more transfers could lead to higher interest rates or lower loan amounts
Online tools like the ones on CarWale can help reduce the hassles associated with loan eligibility. No need to run around with documents, no need to physically visit multiple banks and no need to prove your eligibility each time – everything is done at just a click/tap.
New Car Loans vs Used Car Loans
Apart from the obvious difference in which type of car you can buy with the aforementioned loans, there are some significant differences which you should take into account before choosing between the two.
1. Loan amount - Banks and financiers will always offer more loan for a new car than a used one. If all terms are met, you can avail a 100 per cent loan on a new car, but only a maximum of 90 per cent loan can be availed on a used car.
2. Loan tenure/duration - Car loans on new cars can be repaid over a longer duration as compared to used cars. While some banks offer repayment tenures of as long as seven years on new car loans, most offer a maximum of five years’ time to repay a used car loan.
3. Interest rates - Banks and financiers generally offer low interest rates on new cars considering they covered by manufacturer warranties and are less likely to have problems. Interest rates on used cars are comparatively higher because of the same logic, they may not be covered by warranty and can be susceptible to more problems and repairs.
You can use online tools like CarWale to compare loan amounts, tenure and interest rates of both new car loans and used car loans and easily make your decision on what to choose.
When should one opt for Loan against Car/Refinancing?
Refinancing is an option to take a new loan to repay an existing loan with your car considered as collateral. The new loan will pay you a lump sum to pay off the existing loan and offer a new interest rate and repayment duration. A refinance option is beneficial if:
1) the interest rates reduce during the tenure of your initial loan repayment, a refinance can lower your monthly EMIs and thus reduce the total amount you spend too
2) your credit score has improved to grant you better interest rates than what was initially offered
3) you want to extend your repayment tenure as you want to save more money for other purposes. This will increase your overall repayment amount.
You should not take a refinancing option if:
1) you have to incur prepayment penalties on your existing loan
2) the processing fees and other charges are higher for the new loan
3) your budget can not support a new loan repayment plan
Check your Car Loan Eligibility (for new or used car) instantly on CarWale – Click/Tap Here.