Thinking about getting a Car Loan? Here's the important thing: You'll be paying back the loan amount plus interest through monthly payments. Interest is the extra you pay for borrowing money to get your car. Let's delve into the specifics and enhance your understanding of Car Loan interest rates.
Car Loan interest rates
A Car Loan interest rate is the percentage that lenders charge on the principal amount borrowed for purchasing a vehicle.
This rate can vary widely depending on several factors, including the lender, your credit score, the loan term, and economic conditions. Understanding this rate is crucial for calculating your monthly payments and the total amount you will pay back over the life of the loan.
Fixed vs. variable interest rates
- Fixed interest rates: The rate remains constant throughout the loan term, making budgeting easier as your monthly payments won't change.
- Variable interest rates: The rate can fluctuate based on market conditions, which might cause your monthly payments to vary.
Factors influencing Car Loan interest rates
When you're applying for a Car Loan, the interest rate can make a big difference to your monthly payments:
- Credit score: Think of this as your financial report card. A high score, typically above 750, could mean lower interest rates because it shows the lenders that you're manage money responsibly.
- Loan term: This is how long you have to pay back the loan. Shorter loans usually have higher payments but less interest amount over time, while longer loans stretch out payments but pile on more interest.
- Down payment: This is the cash you can give upfront. A bigger down payment reduces the amount you need to borrow, which can result in lower total interest payment.
- Debt-to-income ratio: Lenders look at this to see if you've got enough income coming in to handle your debt. A lower ratio is better for scoring a good interest rate.
- Car's age: New cars often have lower interest rates, while used cars might be a bit higher since they're seen as riskier.
- Economic factors: Car loan rates can go up and down with the interest rates in the economy. When overall rates drop, Car Loan rates might follow suit.
Fees and paperwork for Car Loans
When checking if you're eligible for a Car Loan, remember there's more to it than just the interest rate: keep an eye out for extra charges and make sure you've got all your important documents ready.
1. Car Loan processing fee
It’s a one-time fee that the lender charges to cover operational expenses related to the loan. The amount varies between lenders, and sometimes, you might be able to negotiate on it.
2. Documents you'll need
- Application form
- Proforma Invoice
- KYC documents and passport size photographs
- Income proof: Payslips or tax documents to show your earnings
- Bank statements: To show your financial activity and stability
- Age proof: PAN/ Driving licence/ Passport/ Birth certificate
- Sign verification proof: PAN/ passport/ bankers verification
- Employment/business continuity proof
Also Read: How to claim tax benefits on Auto Loans?
Conclusion
Understanding how Car Loan interest works is essential for anyone considering financing their next vehicle purchase. By familiarising yourself with the types of interest rates, how they are calculated, and the factors that affect them, you can make an informed decision that aligns with your financial goals.
With Axis Bank's New Car Loan, not only can you manage your financial liability with ease, but also get to enjoy the perks of attractive interest rates and other benefits, including up to 100% on-road funding, comfortable tenure, and Axis EDGE reward points. With a minimum loan amount starting at ₹1,00,000 and special benefits for priority banking customers, Axis Bank ensures your dream of car ownership is within your reach.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
