What Is a Car Loan? – Types And Eligibility

In today’s era, almost every person desires to own a car for his/her family. Back in the days, a four-wheeler was considered to be a sign of luxury – also one cannot forget the fact that a car provides convenience for family trips, business travel and so on. However, owning a car in today’s times isn’t a big deal as you have a variety of financing options. You have dozens of lenders and financial institutions that can offer you a car loan. But what is a car loan? What does financing a car mean? Let’s understand all this as you scroll down!

What is a Car Loan?

Well, a car loan is a type of loan wherein you borrow some money from a lender to purchase a four-wheeler vehicle. Gone are the days when getting a car loan was a struggle as you needed to do a lot of paperwork. Today, in the era of the digital world, things have changed drastically. With technological advancements, lending practices have changed, thereby, allowing you to get approval for car loans within minutes.

A car loan is usually granted only after considering many factors such as credit score, income, past loans, etc. It can be repaid in instalments over a period of time that can go as high as 10 years. However, on average, it is given for a period of 5 to 7 years. These car loans not only provide you with a convenient method to fulfil your dream of owning a car but also help you build your credit score. Today, almost every significant bank and other such intuitions provide car loans at favourable interest rates that vary between 7.5% to 10% per annum.

Also Read: How to apply for a loan without income proof?

Types of Car Loans

On the basis of collateral, a car loan is of two types:

Secured Car Loan

It is the type of loan that requires collateral in some form so that the bank providing the loan can secure their money. In case, you are unable to pay off the loan, the bank would seize the collateral to recover their losses.

Unsecured Car Loan

It is a car loan that does not require collateral in any form. The banks grant these loans only to those who have good credit history and a stable source of income. However, these unsecured car loans come with higher interest rates as they are riskier for lenders.

New Car Loan

This is the kind of loan that is granted to you at a relatively lower interest rate when you are buying a brand-new car from a showroom. It is one of the most common and easily available car loans in the market. However, you would need to have a high credit score to avail it.

Used Car Loan

As the name suggests, this is the car loan that is used to finance pre-owned cars. If you are purchasing an old used vehicle, you can avail yourself of a used-car loan. However, always keep in mind that it comes with a higher interest rate and lower amount.

Loan Against Car

If you have an old car that you do not use, you can pledge it as collateral to get financial help from the bank. You can then use these funds to buy a new or a used car for yourself.

Eligibility to Get Car Loans

Though the eligibility criteria to get a car loan varies from lender to lender, here are certain things you must fulfil to obtain the funds.

• You must be a resident of India and at least 21 years of age and not more than 65 years to avail a car loan
• Whether you are self-employed or a salaried professional, you must have a stable source of income with a work experience of at least 2 years
• The applicant must have a good credit history and a credit score of a minimum 700 or above
• If required, you must give a down payment of 10-20% of the car’s value

Now that you know what is financing a car or what is auto loan, let’s understand what is the down payment on a car?

Also Read: What is a personal loan?

Down Payment

It is the upfront payment that you would require to pay at the time of the purchase of your car. Though the amount you pay on a down payment varies depending on the lender’s policy, it is usually 10-20% of the car’s value.

Conclusion

We hope you’re pretty much clear on understanding the nuances of a car loan and also its eligibility criteria. Now that you have a better understanding of a car loan, you can check out Airtel Finance loan offerings as we also provide a car loan and a used car loan too.

Also Read: What are the Various Types of Personal Loan?