Used car Loan: Lenders offer used used car loans up to 80-85% of the price of the used car at attractive interest rates for a loan tenure up to 5 years. However, certain lenders will offer loans for used cars that have been purchased within the last 5 years.
Loan against Car: When one is in dire need of funds, he or she can pledge his or her old car as collateral in order to obtain sufficient funds to purchase a new car. This is known as Loan against Car. If you have a bad credit score, you can pledge your old car to the bank as collateral to obtain some much-needed funds.
When you want to receive funds to purchase the new or used car that you have been eyeing for a while, it is better that you opt for a pre-approved loan. To avail such a loan, you can follow a few steps to quickly receive the required funds.
Check Your Credit Report: You can check your credit report to verify your standing in terms of credit score. A score of 750 or more can get you a lower interest rate. However, the interest rate for a score of 650 to 750 will be slightly higher. If you have defaults in your report or have a very low score, your application may be rejected.
Your Bills on Time: In order to avail a loan to purchase your dream car, you must have a minimum monthly pre-tax income and a manageable debt-to-income ratio (DTI). While it is usually not possible to change one's income, you can improve your DTI by clearing off all your pending credit card debts.
When you take a car loan, you can repay it in Equated Monthly Instalments (EMIs) till the end of the repayment tenure. However, if you decide to pay off the outstanding loan amount before your tenure ends, you will be foreclosing or prepaying your loan.
The foreclosure/prepayment facility is offered by most lenders for a penalty fee though some lenders may allow you to foreclose/prepay your car loan without charging you any penalty.You can foreclose your car loan if your income has increased, and you wish to clear off your liability. It also takes away your burden of having to make monthly EMI payments. Foreclosing a car loan will release the hypothecation on the car and give you full ownership.
As stated above, some lenders may charge you a penalty on loan foreclosure. Hence, before you decide to foreclose a loan, it is a good idea to go through the clauses associated with it carefully.
If, after taking a car loan, you need quick or additional funds for purposes such as a wedding, home renovation, medical emergency, etc., you can get a top-up loan on your existing car loan. You can avail up to 150% of the car's value as a top-up loan.
Most lenders that offer a top-up on their car loans will require you to maintain a clear payment record for at least 9 months. The process to avail a top-up loan on your existing car loan is quick and requires minimal paperwork.
When you take a new loan to pay off the outstanding balance on your existing car loan, it is known as car refinancing. You can choose to refinance your car loan if you wish to replace your current loan with better features such as low interest rates, extended repayment tenures, etc., or simply to change the terms of your current loan. The most common reason why people refinance is to save money. When it comes to refinancing, you can avail a new loan that offers lower interest rates which, in turn, will save you money. You can also lower the equated monthly installments (EMIs) by choosing a longer repayment tenure with a new lender through car refinancing. Car refinancing is a good idea when there has been a drop in interest rates since you took the original car loan, your financial condition has improved, you are unable to bear the burden of high EMIs, and if you feel you did not get a good deal on your car loan the first time around.
However, refinancing does not make sense when you have already made a substantial repayment of your original loan, your car value has depreciated, the prepayment penalties are high, and when you have plans to apply for new loans in the future as refinancing may impact your credit score negatively.
