Published on June 29th, 2020
The unprecedented outbreak of novel coronavirus has stirred the Indian economy. It has shifted routine for almost all people, except the ones fighting on the front lines.
Everybody is speaking about this ‘new normal’ and speculating the future. It is safe to say here that despite major speculations, people will need to take all necessary precautions until normalcy is entirely restored.
Many sectors have been hit due to the COVID-19 pandemic, including banking and non-banking financial services.
Travelling via public transport continues to carry great risk. Therefore, people are considering buying a personal vehicle to move around.
However, due to COVID-19 hit on the Indian economy financing a car may not be as convenient as before. In such a case, taking a car loan becomes the best alternative for getting your car.
Taking a car loan during these times raises lots of queries such as what factors to consider, situations under which you should take a loan, or its effect on your financial health.
Here are four key factors you should know while considering a car loan:
1. Your Credit Score
A credit score is essential to get any particular loan – even a car loan. Thus, maintaining a good credit score becomes critical as it defines how much amount you can get under a car loan.
CIBIL or credit score of above 750 is considered good by any bank or financial institution for lending you the loan money for buying a car.
Higher credit scores also attract a lower rate of interest, thereby affecting your Equated Monthly Instalment. You can check your CIBIL score online.
If it is less than 750, consider improving it before applying for a car loan. You can do so by paying off all your debts or at least a major portion of outstanding credit to improve the score in due time.
2. Ask The Bank About Your Eligibility
Every bank has different eligibility criteria for granting a car loan. Especially considering this pandemic, you must be careful about taking a car loan.
You can visit your preferred bank or the one with whom you have an established relationship to know all the details regarding car loan eligibility.
It mainly concerns your net monthly income, average monthly expenses, outstanding loan payments, credit score, and your age. You can visit your bank to know about these car loan factors in detail.
3. Loan Amount And Down Payment
As discussed before, a good credit score can attract higher loan amounts. The uncertainty prevailing at this time is also worrying banks about loan NPAs. COVID-19 has stirred all bank’s lending decisions due to ambiguity.
Banks can, therefore, conduct a detailed assessment of your financial health before giving you a car loan.
During the evaluation, they may also ask you to make a down payment as it offers banks a chance to provide lower loan amounts.
Keeping a good banking relationship with your bank and maintaining a good credit score can help you significantly during such stressful times. Considering these factors, you may get a higher car loan amount if all requirements are met.
4. Interest Rates
The interest rate is essential for you to know as it is added to your monthly installment along with the principal amount. A good loan repayment history and credit score of 750 or above can fetch you one of the best interest rates for a car loan.
It also depends upon your loan amount. If you take a loan for 100% of the car’s price, the interest rates are usually higher as you have not made any down payment.
Taking a 100% car loan should only be considered if you do not have any money to pay as a down payment.
In other cases, you should consider saving a reasonable amount towards the purchase along with improving your credit score.
These factors are essential to improve your chances of getting a lower rate of interest against your car loan and attract a higher principal amount.
Know All Facts And Features Of Your Car Loan
Buying a car can be your best bet against safety during COVID-19. If you cannot pay for it entirely from your savings or cash, you can consider taking a car loan to travel around safely.
Keeping aside all these factors, it is essential to take a car loan from a reliable bank like Axis Bank that charges a reasonable rate of interest.
You can also use their online EMI calculator to gauge your monthly installments. The bank also provides a pre-approved car loan for you to drive around in your newly bought vehicle.