The present situation has made us feel that travelling in public transport can be risky. More and more people are nowadays heading to buy personal vehicles for themselves. Be it a 4-wheeler or a 2-wheeler, people are nowadays more interested to travel in their own vehicle. Most of the people who purchase vehicles go for finance schemes offered by various banks and other loan providers. In this article, we will tell you all that you need to know about car loans. Starting from the factors affecting your eligibility we will take you through various requirements you need to fulfil while taking a car loan. Read this article till the end to clarify all your doubts.
What are the factors affecting your car loan eligibility?
1. Credit Score
The first and the most important condition that you need to fulfil to get your loan approved is your credit score. While different banks have different criteria of judging a credit score, if you have a credit score over 650, you have decent chances to get your loan approved.
2. Employment Status
Again, different loan providers have different criteria of judging you on this too. Most of the banks’ lookout for employment history of 1 year in the same company or 2-3 years of total employment period if you have switched jobs frequently. For self-employed applicants, the criteria say that they should have been running the same business for at least 2-3 years. You can check the eligibility criteria of major Indian banks
3. The income of the applicant
Another important thing that loan providers consider before giving a car loan or any other loan is the income of the applicant. This is done in order to make sure if the applicant is actually able to pay back the loan amount. Simple math, higher the income, higher the loan amount you will get.
4. Employer’s Reputation
No matter how high your income may be, your employer’s reputation is also taken into consideration. Generally speaking, you may get a car loan more easily by earning less at a Fortune 100 company than by earning more at a company that has a low market reputation.
5. Relationship with the Bank/ Loan provider
In case you apply for a car loan with a bank already holding your saving account, fixed deposits, jewellery and more, it is time to ask them some favour for being such a loyal customer! This is also one of the major factors which can get your car loan approved in a single go. That’s not all, you can also negotiate on the interest rates with a bank you have been with for so long!
How to increase the chances of getting your loan approved?
1. Maintain a good credit score
This is a common term that you will come across when you apply for any loan with a bank or a lender. Your credit score is what gets you money from the loan provider. The higher your credit score is, the better your chances of getting a car loan become. Wondering how to increase credit scores? Well, the simplest method to do that is by never missing your payments! If you pay your EMIs properly without any delay and keep settling your credit card bills you will have a decent credit score for sure. If you hold a good credit score, your auto loan will also get approved quickly.
2. Balance your debt-to-income ratio
The debt we are taking into consideration here is the actual debt or the previously running loans under your name. Yes, if you apply for a new loan, all your currently running EMIs or debts are checked thoroughly. This is a common method used by the lenders to check if you can actually pay back the new loan you have applied for. In common terms, if you already have loans whose EMIs cost you 40-50% of your monthly income, then you might have to struggle to get a new car loan.
3. Down Payment
Providing a hefty amount as the down payment will also help you increase your chances of getting a car loan. This is because if you have already given the majority amount as a down payment, your loan amount will be less. This will give the lender a chance to have faith in you and the math is simple. The lesser the loan amount, the lesser is the risk and therefore, there are more chances of it getting approved.
4. Adding a Consigner
You will have to check with your loan provider if they provide this facility. This is a case where the primary borrower who has a bad credit score can introduce a person to the bank who has a good credit score and can pay back the loan in case the primary borrower is unable to do so. This is a good option if you have a bad credit score and want a car loan immediately. This can increase your chances of getting a loan by almost 25%.
Documents Required to get a car loan
As always, paperwork is necessary for carrying out any deal in the market. For getting a car loan, here is the paperwork you will need to carry out or the documents you will need to present. Here is a list of government proofs required to prove your car loan eligibility:
- Photo ID with age proof (Aadhar, PAN etc)
- Passport-sized photographs
- Residence proof (Passport, Voter ID, Driving Licence etc)
- Bank Statement for 6 Months
- If the applicant is salaried:
- Last 3 salary slips
- Form 16 or the latest ITR
- If the applicant is self-employed:
- Balance sheet and profit and loss account, computation of income for the last 2 years
- Income Tax Returns – last 2 years for Applicants, 26 AS, Traces
- Business proof like Gumasta License, Registration Certificate etc
- IT Assessment / Clearance Certificate, Income Tax Challans / TDS Certificate (Form 16A) / Form 26 AS for income declared in ITR.
This was all for car loans and finances. We hope we were able to tell you enough about what are the car loan eligibility criteria and how you can work towards making your car loan get approved fast and easy! As always, share this article with all those looking to get a car loan and help them skip the disappointment of rejection of their application. If they will know about the criteria before-hand, they can be an aware customer and negotiate with the provider on valid terms.
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