Car Buying Guide: Tips to Get The Best Car Loan Deal

Excerpts (Key Highlights):

• Financial institutions like banks, NBFCs, and online lenders generally provide up to 90% loan on the car's on-road price.
• A CIBIL score of over 750 ensures your creditworthiness.
• Paying at least 20% of your car's final amount is recommended.

Buying a first car is an exciting, but a major financial decision. In this process, getting the best car loan is also crucial, as it can either make your purchasing journey smooth or become a burden on your pocket. Here's an expert-backed guide to help you get the best loan for your first car, with the lowest distress on your finances.

Understanding the Basics of a Car Loan

A car loan is an amount that a bank, NBFC or any other financial institution/lender provides you to purchase your vehicle. One needs to repay it with Equated Monthly Instalments (EMIs) over a fixed tenure. The EMI generally includes both principal and interest rate on your loan. The interest rate depends on multiple factors, such as the loan amount & period, the borrower's liabilities, and credit score.

Maintain a Good Credit Score

To get the best car loan, it is important to have a healthy credit score. A high credit score (generally above 750) increases your chances of getting the loan faster with lower interest rates. One can maintain a credit score by paying credit card bills on time, reducing existing debts and avoiding new credit inquiries.

Plan Your Purchase

The festive season or the end of a financial year is generally considered the best time to plan your purchase, as brands offer various deals on their models that reduce the overall purchase cost. Some lenders also offer reduced processing fees during these times, along with lower interest rates that further help in securing the best car loan for you.

Compare Interest Rates

Don’t go with the first loan offer you get. Compare interest rates, processing fees, and loan foreclosure charges across different banks and NBFCs to make an informed decision. Find the lowest possible rate of interest so that you can save your money.

Check for Hidden Charges

It is not only the interest amount you pay on your loan. There are multiple additional charges that increase the overall financial burden, such as processing fees (usually between 0.5-2%), documentation and stamp duty, prepayment/foreclosure penalties and late payment fees for delayed or missed EMIs. So, always check the cost breakdown and read the terms & conditions thoroughly to avoid any surprises.

Bargain with Your Lender

Loan terms are negotiable. Therefore, if you have a high credit/CIBIL score and a stable income, you can negotiate the interest rate, ask for a waiver of documentation charges & processing fees, along with better terms on loan foreclosure. 

Pay a Higher Down Payment

Most lenders provide up to 90% loan on your car's final price (on-road price). The remaining amount you need to pay as your down payment. We recommend that you pay at least 20% (40% in case of EVs) as the down payment, because an ICE vehicle generally loses approximately 15-20% of its value in the first year. This is nearly 35-40% in the case of electric vehicles (EVs). This way you can:

· Avoid getting into a losing situation.

· Reduce your loan amount.

· Lower total interest paid.

· Improve the overall credit score further.

Shorter Loan Tenure

The longer the loan tenure, the higher the interest you pay. Therefore, try to opt for the shortest loan tenure to keep the interest on your loan to a bare minimum. This way, you can save on your total repayments.

Use Online EMI Calculator

Use an online EMI calculator available on various banks and auto tech websites to simulate your monthly payments. This will help you plan your monthly budget and repayment, ensuring you do not spend more than 25% of your monthly income on EMIs.

Road to Your First Car

Finding the right car loan is essential to make your purchase and ownership journey financially stress-free. It also impacts your monthly budget and credit profile. Hence, it is important to make an informed decision instead of hurrying into the first offer you get. One should also ensure they have a strong financial foundation, such as a high credit score, minimal or no debt, and a clear history of loan repayments, before applying for a new car loan. This way, you can ensure your first car loan brings you joy and freedom so that you enjoy your car to the fullest without being too worried about the financial stresses.

FAQs

1. How to get a lower interest rate on your car loan?

A borrower must have a high credit score to secure a lower interest rate. The interest rate can also be reduced by paying a higher down payment and opting for a lower loan tenure.

2. What factors decide creditworthiness?

Your credit scores, ongoing financial debts, stable income, and repayment history determine your creditworthiness.

3. How much down payment is needed to buy a new car?

In general, lenders provide up to 90% loan on the car's on-road price. So, the remaining amount needs to be paid as a down payment. Some companies also offer a 100% loan on a new car, but one should always skip such deals to avoid lose-lose situations.

4 Why is paying a higher down payment recommended?

Paying a high down payment reduces your overall loan amount and the interest you pay on that. It also saves you from losses occurring from depreciation.