Car Loan Process: Find Here Few Simple Steps On How To Get A Car Loan As Different Banks Have Different Car Loan Process Now Compare & Choose The Right Car Loan With A Bank Of Your Choice
Getting a car loan is very easy and you can get one in a few simple steps. Almost all banks and lenders these days allow you to apply online and make a paperless application.
Although different banks offer different procedures for getting car loans, the basic procedure is the same. The first step of getting a car loan is finalising the brand and model of the car that you want to purchase. Next, you need to check your eligibility for the loan. You can do so by visiting the website of the bank and checking if you meet the eligibility criteria.
The next big step is to figure out your loan amount. It will depend on how much you can pay now, for long do you want the loan to go on and the interest rate. You can use the EMI calculators available on banks websites to decide on your loan amount and tenure.
Once youve decided on the car model, the bank as well as the loan amount and tenure, you can begin the application process. You can either visit a branch or apply online by visiting the banks page. You will need to submit an income proof, age proof, identity proof and address proof. Some banks take seconds to approve your loan. Once approved, funds are transferred instantly to you account. You can then book your car.
Is A Lower Monthly Payment Always Better
It’s important to remember that a lower monthly car payment doesn’t necessarily mean that you’ll pay less overall for your loan. That’s because of interest.
In general, the longer the term of your loan, the lower your monthly payment will be. That’s because your repayment is stretched out over a longer number of months. But you’ll pay more in interest if you take out a longer-term loan.
Here’s an example: Say you take out a $25,000 auto loan at 3% interest for a term of 48 months. During your 4 years of payments, you’d pay $1,561 in total interest. If you take that same loan at that same interest rate but extend your term to 60 months 5 years you’d drop your monthly payment by $104 but you’d increase the amount of interest you’ll pay to $1,953.
A shorter-term loan, then, might be a better choice if your budget can handle a higher monthly payment. Youll pay less for your car by taking out a shorter-term loan.
If your financial situation changes, you can investigate refinancing your auto loan. Be aware, though, that refinancing isnt free. Youll have to pay fees, so make sure the reduction in interest rates is worth the costs of a refinance.
When Did It Begin
The car loan officially originated in 1919, when the General Motors Corporation established the General Motors Acceptance Corporation, or GMAC. GMAC arose in response to the growing demand for automobiles among American consumers after World War I. In 1919 GMAC established offices in five North American cities a year later it opened its first office in Great Britain. As the car loan business expanded, other automobile manufacturers began to develop their own financing divisions. One of the most prominent was the Ford Motor Credit Company, founded in 1923. Although car loans were available most American consumers during the first half of the twentieth century paid cash for their automobiles.
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Gap Insurance Pros And Cons
Investopedia: What is GAP insurance, and is it a good idea?
Morrison: When purchasing a new vehicle, the vehicle loses value as soon as you drive it off the lot. A new vehicle can depreciate anywhere from 10 to 30% within the first year alone. GAP insurance is intended to cover the difference between what you still owe on the vehicle loan and what the current, depreciated vehicle is worth.
For example, if you buy a new vehicle and finance all of it at $30,000 and get in an accident one year later, you may owe more on the vehicle than it is now worth after depreciation. A standard auto policy will cover the damaged auto at its current replacement value, but the GAP insurance will then cover the difference between that replacement value and what you still owe on the vehicle.
GAP insurance is often required on leased vehicles, and it is advised when purchasing a vehicle with little or no money down. It is also used when a consumer trades in a vehicle that has been financed, and you are bringing in the negative equity . An auto insurance company often charges less for a GAP policy than a dealership. So again, get a couple of rate quotes before purchasing a GAP policy at the dealership.
In general, I would encourage a consumer to negotiate the price of the warranty. The price that is listed in the literature, or first offered, is much higher than what the salesperson or financing officer can offer you. Kathryn Morrison
What You Should Know About Auto Loans Before You Sign On The Dotted Line
With few exceptions, buying a car consists of two major activities: finding the car, and taking out a loan to pay for it.
Understanding how car loans work, how they differ from other types of borrowing, and what you need to know to avoid getting taken for a ride is the business of consumer affairs expert Kathryn Morrison of South Dakota State University.
Dr. Morrison spoke with Investopedia recently to try to help would-be car buyers understand the sometimes confusing world of automobile loans. Our edited conversation follows.
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Why You Should Shop For A Loan
To avoid having to deal with the potential scams and high costs of financing through the dealership, you may want to explore all of your financing options before you get to that point. By preparing yourself with good information and knowing what your options are, you can make a much better financial decision. Don’t let the excitement of driving off the lot in that new car distort your perspective on things and cloud your judgement. That’s just what the salesman wants!
Before you start shopping for cars, you should shop for the money to buy a car. Before you can shop for the money, however, you have to figure out how much of a car payment you can afford to pay each month. Once you know how much you can afford, use one of the hundreds of online car payment calculators to find out what that total car purchase price can be. You’ll need to know the current average interest rates for car loans before you can calculate that, so also visit an online banking site to see what the best interest rates are at the time.
Here is an example of how this would work. Let’s say you’ve looked at your budget and know you can afford a monthly car payment of $300. You’ve also looked at interest rates and see that the average rate is around 6% right now. If you know you are willing to pay that $300 every month for the next five years, then, calculating backwards, you’ll know to look at cars that cost around $13,000. Try this calculator if you don’t want to have to figure out your budget first.
How The Down Payment Affects Your Loan
While it is possible to buy a new or used car with no money down, it’s not recommended. According to The Simple Dollar, car dealers are willing to overlook a down payment, but it could end up costing you a huge amount in interest. The down payment is the amount of money you can spend out of pocket on your new vehicle, and the more you can come up with, the better off you will be. Your loan will be taken out on the amount you need to borrow, minus your down payment.
For example, if you want to buy a vehicle that costs $35,000, and you have $5,000 to put as a down payment, you will need a loan for the other $30,000. So the more money you have for a down payment, the less your principal will be. The Simple Dollar also tells us that the higher the amount put as a down payment, the lower your overall monthly payment is going to be.
Additionally, many people will refinance their car loan soon after getting one. By doing so, you may be able to get a better deal from another lender. This could potentially save you a lot of money on your monthly bill. If your credit score has improved at all since you initially took out your car loan, refinancing might be beneficial as well.
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What Do Lenders Look At When You Apply For An Auto Loan
Lenders will look carefully at your income, debts and credit score when you apply for a loan. The higher your credit score and income and the lower your debts, the more likely it is that lenders will approve your loan request.
Lenders will also pull your three credit reports, one each from the national credit bureaus of Experian, Equifax® and TransUnion®. These reports will include any recent late or missed payments. Lenders are more likely to work with borrowers who dont have a history of missed payments. This doesnt mean you cant get a car loan if youve paid your credit card bill late in the past, but you might get hit with a higher interest rate, making your auto loan more expensive.
Lenders will also look at the price of the car you want to buy. The more expensive your car, the better your credit and income levels must be to qualify for a loan. Its important to note, too, that loans for used cars typically come with higher interest rates than do those for new cars.
Finally, lenders will look at the length of your loan. If your loans term is longer the more months it will take you to pay it off lenders might charge you a higher interest rate to make up for the increased risk theyre taking on.
Does A Car Loan Affect My Car Insurance
Obtaining a loan to buy a car means you are not the only person with an investment in that car. The lender has a financial investment until the car is fully paid. Therefore, they want to ensure it is protected.
Your lender, or lienholder, is listed with your car insurance policy. They may request that you add additional coverage to the policy to protect the shared investment.
Comprehensive and collision coverage is usually requested to be added to your policy. Comprehensive coverage covers damage that occurs when the vehicle is parked like incidences of fire, hail damage, vandalism, and theft. Collision coverage protects your car in case of an accident regardless of who was at fault.
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Where To Get A Car Loan
You have a few choices when looking for an auto loan, letâs talk about the most common options. First, you can get a loan directly from a financial institution, like a bank or a credit union. This option might be especially appealing if you already have a relationship with your bank or credit union â and that can sometimes help you secure a better rate. Youâre also borrowing the money directly from that institution, instead of going through a middle man, which means youâre avoiding extra fees that might come with a third party.
You can also get a loan through the auto dealership where youâre buying a new or used car. This scenario gives you the convenience of a one-stop-shop: Youâre getting your car and loan in the same place, and you can usually complete the whole process in a day if speed is your number one priority. And the dealership can give you offers from different lenders, meaning you may have a few choices. Auto dealerships may also offer special deals to try to get you to take out a loan with them.
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A Lower Monthly Payment On Your Car Loan Doesnt Always Mean Youre Saving Money Heres How Car Loans Work
Purchasing a car typically means taking out a car loan. If youre in the market for a new vehicle, youve probably spent a lot of time researching car options, but do you have a good understanding of how car loans work? When you take out a car loan from a financial institution, you receive your money in a lump sum, then pay it back over time. How much you borrow, how much time you take to pay it back and your interest rate all affect the size of your monthly payment. Here are the 3 major factors that affect both your monthly payment and the total amount youll pay on your loan:
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Is A Down Payment Required To Use An Auto Loan
Car dealerships typically recommend 5-10% down payment for a new car, while financial advisors may suggest up to 20% for a down payment on new cars. Lender requirements often dictate the down payment required, and otherwise, it can be left to your personal investing preferences.
Down payments can be in the form of a trade-in vehicle, cash, check, or debit/credit card. Some maximum payment limits may apply when using a credit card.
A down payment lessens the total amount of money you will need to borrow, consequently leading to lower interest rates and potentially, a shorter lease term. It also makes it simpler to get approved for a loan and offsets depreciation.
Since putting money down can prove your committment and ability to pay to lenders, it can lead to quicker loan approval and lower interest rates. If your credit score is less than 600, a down payment may be required to be eligible for a loan.
It is possible to finance a car with an auto loan, without any money down, however, the lack of down payment can increase your chances of negative equity.
How Do Loans For Cars From Private Sellers Work
A loan to buy a used car from a private seller is sometimes called a Private Party Auto Loan. It means you get a loan from a financial institution and use the money to buy a car from an individual person, not an official car dealership.
This person could be a family member, friend, colleague, or neighbor. It could be someone you find through a website, app, or magazine. You might even see an ad in the window of a shop or a parked car!
Heres how loans for used cars from private sellers work:
- You see a used car you want to buy from a private seller.
- You choose a financial institution that offers loans for cars from private sellers.
- You apply for a loan with the details of the car youve found.
- Once approved, your lender will give you the money to pay the private seller.
- You buy the car and begin making monthly payments to your lender.
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Car Loan Interest Rates
The interest rate is the most vital decisive factor of a car loan. In other words, the interest rate is the sale bait which is used by the banks and finance agencies to sell their loan products. In this regard, it can safely say that that the car loans at present work in India on the basis of promotion and the level of competition is very intense and high. For example, if one bank offers car loans starting from 8.99% p.a. other banks challenge it by offering loans at 8.50% p.a. or even lesser. On an average, the top leading banks and other financial agencies in India are offering car loans at an interest rate ranging from 10% p.a. to 13% p.a. However, the interest rate is not same for all the borrowers and it varies from case to case. Depending on the borrower’s profile, applied loan amount, repayment tenure and certain other factors a final interest rate is offered by the banks to the borrowers.
How Do These 3 Factors Affect Your Monthly Payment
A lower monthly payment always sounds good, but its important to look at the bigger financial picture: That lower payment could also mean youre paying more for your car over the life of the loan. Let’s see how adjusting each of the 3 factors can affect your monthly payment:
- A lower loan amount. Let’s say youre considering a $25,000 car loan, but you make a $2,000 down payment or negotiate the price of the car down by $2,000. Your loan amount becomes $23,000, which saves you $44.27 per month .
- A lower APR. Consider that same $25,000 car loan and lets assume a 4-year term. One financial institution offers a 3.00% APR and another offers a 2.00% APR. Taking the lower APR will save you $10.98 per month.
- A longer loan term. Extending a $25,000 loan from 4 years to 5 years lowers your monthly payment by $104.14, but, youll end up paying $391.85 more in interest charges over the life of the loan.
Use the Bank of America auto loan calculator to adjust the numbers and see how differences in loan amount, APR and loan term can affect your monthly payment.
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