5 MinsOct 25, 2021
Rajat recently changed jobs and got a significant hike in his salary. Now he wants to buy a new car for his commute. While he can afford the down payment, he will still need a car loan to pay for the rest of the amount. What should Rajat keep in mind when applying for a car loan? How can he ensure that the loan will not put pressure on his budget and that he would be able to repay with ease?
Here are a few factors for Rajat to consider when applying for a car loan:
1. Loan to Value Ratio (LTV)
LTV is the proportion of a new car cost that a lender is willing to finance. A higher LTV means that Rajat will have to spend less from his pocket. However, he must keep in mind that opting for a higher LTV means a higher loan amount and, consequently, a higher total interest outgo. While most banks finance up to 85% of the car value, a few like Axis Bank have an LTV ratio of 100%. This means the bank will fund the entire amount of the on-road cost of the new car.
2. Rate of Interest
Different banks charge different interest rates on car loans. Other than the customer’s income, the rates also depend on the customer's credit score and whether they enjoy an existing privileged relationship with the bank. Considering that a typical tenure of a car loan is between 3-7 years, interest forms a substantial part of the eventual outgo for a car buyer. Rajat should, therefore, get the best interest rate deal he can while opting for his new car loan. He can check out Axis Bank’s Car Loan EMI Calculator to know the exact EMI and the break-up of the principal and interest amounts over the entire loan tenure. This will help him plan his finances better.
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3. Loan Tenure
Loan Tenure and interest rates both have a direct bearing on the EMI (Equated Monthly Instalment) Rajat will pay. If he takes a three-year loan, the EMI will be higher than on a five-year loan. Again, he can check the calculation using the Car Loan EMI Calculator to know his exact monthly outgo for different loan tenures and decide the EMI he can comfortably afford to pay. He, however, has to be aware that while a longer tenure will result in a lower EMI, he will end up paying a higher amount of total interest.
4. Foreclosure charges
All banks charge a foreclosure fee if the loan is repaid, either partly or wholly, before the end of the tenure. These fees generally range between 3-6% of the principal outstanding. Rajat should keep charges in mind.
5. Special offers
Most lenders have tie-ups with car manufacturers or dealers to offer special deals to their customers. These could be in terms of discounts, waiver of processing fees and so on. Rajat should look out for such special offers to draw full benefits from them.
Axis Bank new car loans cover up to 100% of the on-road cost of an automobile. These loans are available for tenures lasting up to seven years with attractive interest rates. You can apply for an Axis Bank new car loan online or by visiting your nearest Axis Bank branch.
Know more details about Axis Bank new car loans and calculate your EMI.
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