There was a time when owning a four-wheeler
was a luxury quotient, and not all could afford it. But with the means of car
loans, everyone can purchase their dream vehicle. This is because the car has
become a necessity and you cannot imagine your life without one, considering
you require a four-wheeler to go to work, complete duties, or drive leisurely.
Auto loans are secured, and hence, you do
not need not mortgage any property or asset for the same. Your vehicle acts as the
security. It allows you to purchase both used and new cars. Such loans are
available under two types of interest rates – floating and fixed.
Let us learn about these types in detail –
Fixed rates:
A fixed car loan interest
rate remains constant throughout or for a part of the duration. Hence, the
payment remains the same as well. This allows the applicants to plan their
finances as well.
Floating rates: Also known as variable car loan interest, is the one which varies
from time to time. The rates fluctuate owing to the market conditions and are
decided based on the current Floating Reference Rate (FRR). There is always a
risk associated with floating rates since they fluctuate when the market
conditions change.
How does eligibility factors affect your
interest rates?
Although many lenders offer a predetermined
interest rate, they can increase or decrease owing to the inability to match
the eligibility conditions.
Credit score: As aware, the required credit score range is between 300 to 900. If
your rating is around 740, you are likely to receive lower interest rates. A good
score is an indication that the lender considers you less risky since you have
been obedient with your previous repayment. In case you want a lower car loan interest rate, it
is better to keep your credit score healthy. Good credit ratings also fetch you
additional benefits.
Repayment tenure: The duration also affects
your interest rates. The longer the mandate, the EMIs lower and interest rates
increase. On the other hand, shorter tenure lowers the prices and increases
EMI. This is why you should opt for a balanced term.
Loan amount:
The credit amount also hurts the interest rates. If you go for a high amount, you
may receive lower car loan interest and vice versa. This, however, varies from
lender to lender.
Relationship with the lender: If you share a good rapport with the lender, regarding payments and
other transactions, you may receive the credit at lower rates. Before
approaching other lenders for the loan, check the interest rates with your existing
lender.
Income: If your salary is towards the
higher side, you may benefit from low-interest rates. It indicates a higher repayment
capacity.
What about interest rates for used car
loans?
