taking out a loan for a car, benefit of taking a loan to purchase a car

Have you ever wondered why the loan interest rates vary when you are taking out a loan for a car. The idea is to look into the details and understand auto loan meaning and related things. Many people think that only the poor take out loans. But in reality the real picture is different then what you think. If you are planning to buy a car, the article is for you. In some cases taking an auto loan is better than buying with cash. In this article, we will identify the main reason for why the interest rate for car loan is different for everyone. Additionally, we will talk about some reasons why it is worth taking a loan for a car.

Benefits of taking an auto loan to purchase a car

There are many reasons for taking an auto loan but there are some real benefits of buying a car on loan. Check out the list below and find the reason that suits you better.

Improve Credit Score with Car Loan

Yes, this is absolutely correct. When you take an auto loan you get into an ecosystem of credit rating. Credit rating agencies keep track of your credit score. For example, if you are planning to take a home loan in future then having a good credit score is always better. And the credit score will not grow without taking credit.

Taking a car loan is easy

Car loan comes under secured loan category due to this chances of loan approval are more. Many financial institutions allow you to take a loan with a low credit score as well. Therefore you do not need a very high credit score to buy a car.

Why is the interest rate for car loans different for everyone?

The change of interest rate is due to the credit score. Credit rating companies give you all individuals a score depending on their payment history. If your payment history is poor, your credit history will also be poor. If you always make your payments on time then your credit score will be better. No financial institution wants to take a risk during the process of car loan approval. First of all, they cross check every detail to be sure that the customer will pay back. Secondly, they increase the interest rate if your credit score is bad. If you are taking out a loan for car, the credit rate is the interest rate deciding factor.

How to check car loan EMI amount?

You can use an auto loan calculator to check the exact amount your will pay in EMI.

What is the difference between a secured loan and unsecured loan?

If you want to compare secured loan vs unsecured loan then the only difference is asset. Yes, in case of a secured loan companies finance an asset they can take back from the customer. For example, when you are taking out a home loan, the bank keeps the registration documents. You only get a photocopy. If you do not pay home loan EMI on time then the bank has the right to sell the house to recover loans.

In case of unsecured loans this option is not available. In scenarios where the customer refuses to pay, the loan goes to the collection process. Later these loans become an NPA. Full form of NPA is non performing assets. In many cases banks offer customers various settlement offers. If nothing works, the last option is to write off the loan amount.

If you are taking out a loan for a car, this comes under the secured loan category. Bank can take your car and sell it if you do not pay monthly installments on time.

What is a credit rating scale?

The credit rating scale is a number that credit rating agencies use to measure your credit history. If you have a higher credit score your chances of getting a loan will be better. The standard credit score range is 300 to 900.

Is it worth taking a loan for a car?

You can also take a personal loan to buy a car. But being an unsecured loan the interest rate will be high. Therefore it is better to apply for a car loan. When buying a car, banks will offer less interest rate. Due to this you can also reduce your monthly EMI.

What is the maximum amount for a car loan that banks approve?

In general there is no upper limit when you want a loan for a car. It all depends on the car value. Some companies offer 100 percent finance for car loans. Therefore, you do not need to pay any down payment for buying a car.

What is the meaning of 100 percent finance for a car loan? What is the process of loan approval in this case?

The meaning of 100 percent finance is that you do not make a down payment against the car loan. The process of taking a car loan is simple. First of all the bank will check your credit score and ask you to submit documents. Banks want to check your income proof and identity. Once they are satisfied that you can repay the car, they will start the process of approving a loan for buying a car. Anyone with a good credit rating can avail this offer but the approval decision happens on a real time basis only.

Do I need to pay processing charges in case of 100 percent car finance?

Yes there are processing charges or file charges. You can contact your bank to know the exact amount. Additionally, you also need to pay for the insurance charges and registration charges. Banks only finance the car. All other charges related to the car to be paid by the customer. Make sure you discuss everything in advance before taking out a loan for a car.

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