Call it status, necessity, or mere convenience, owning a vehicle is on almost everyone’s bucket list. However, buying one is expensive. Therefore, interested buyers apply for Loans from banks to purchase a new or pre-owned car, ranging from a hatchback to an SUV or MUV.
An Auto Loan is specifically for car buyers who want to buy a brand-new car, whereas Used Car Loans are for those who want to buy a pre-owned one. Like other Loans, this borrowing type also has specific features and terms and conditions. Of course, the primary aspects such as tenure, interest rate, down payment, and eligibility criteria are common for both Loans, with a slight variation.
Eligibility criteria
Car Loans also have eligibility criteria that become the deciding factor for approval or rejection, which include the borrower’s source of income, age, Loan-to-Value ratio, mandatory documents, type of car, and credit score. You can get quick approval only if you meet these conditions. Your credit score can impact Loan approval and the Car Loan interest rates. Banks often check your credit score before sanctioning the Loan.
You must have an excellent credit score, minimal debt, and a sizeable down payment for the best interest rates. These factors indicate to the bank that you are not a risky borrower and can lead you to closing in on a low interest rate. If your credit score is high, the chances of availing a lower interest rate are higher.
Best scores
A credit score of 700 and above is excellent for getting the best Auto Loan interest rates and terms. It typically takes about four to six months for someone with a score of 650 to reach 750-plus. If you are between 500 and 550, it takes about eight to 12 months. However, the interest rate concession you can avail yourself of depends on the bank to which you have chosen to apply for the Loan.
Most credit reports and scores are calculated based on timely bill payments, debts owed, such as Credit Cards and Loans, your credit history, how many credit accounts you hold, and your credit types. Keeping tabs on your credit score and maintaining a positive history can help you obtain the best interest rates while you purchase your dream car.
Ways to improve credit scores
Firstly, you need to check your CIBIL report. Find out the errors or mistakes present in it and try to rectify them. Never apply for a new credit request in a short period. Try to settle your outstanding dues or default payments as soon as possible. Ensure that you pay your EMIs and Credit Card bills on time.
If you want to improve your credit score, try paying off all outstanding dues and defaulted payments. Also, try to spend only 30% of your Credit Card limit, as this is considered good for maintaining a good CIBIL score.
