Auto Loan

In the present world, cars and two-wheelers are not considered a luxury but a necessity. However, not only is the decision of the model of cars important but also how to afford it with ease. While many can pay up for a car upfront, many choose to opt for other helpful finances, which simply means taking a loan and paying it time-to-time with interest to the lender. An auto loan is nothing but, similar to any type of loan specifically for cars.

Thus, one can arrange an auto loan from a company, such as a financial institution called a bank, or even from the car dealership at which an individual wishes to purchase the vehicle. The auto loan generally, offers to lend the required amount of funds to purchase the cars, and the loan receiver commits to repaying the loan sum with interest by regular payments.

What can an individual understand from Auto Loan?

In simple terms, an auto loan is usually used to buy a car or truck by following simple interest rules with different interest plans. Generally, an auto loan lasts for a four to a six-year term. Its main objective is to divide a huge sum of money into manageable instalments, easing the buyers of vehicles.

However, if an individual fails to make payments, the bank may take possession of the underlying asset if you stop making it. Also, they are free to take back possession of one’s car as well.

What do banks consider before sanctioning an auto loan?

auto loan

When compared to home loans, loans for vehicles are approved much more easily. However, before approving, lenders do keep in mind a set of factors that must be kept in check.

  • Original Documents – Typically, each lender has different requirements for actual documentation but the basic list includes an address proof, bank statement, and identity proof.
  • CIBIL Scores – Similar to other loans, auto loans consider both the credit at the time of application as well as the payment history of the past. Thus, a credit background plays a major role in the likelihood of approval of an auto loan.
  • Earnings and Employment – Lenders prefer sanctioning loans to those who can repay them by having a consistent monthly income and a steady job.
  • Current Debt Repayments – Before approving a loan request, a track of all previous EMI and mortgages is also looked over. This is done by calculating the annual income ratio with installment expenditure and outflow.

As a result, sometimes it’s important to weigh the opportunity cost of our choices. We need to consider the expense of the interest on the loan even though we can afford the monthly payment for a car loan.

By Elora