Things you will know after reading this article:
- What is a Vehicle loan?
- How is it different from a PERSONAL LOAN?
- VEHICLE LOAN v/s PERSONAL LOAN, which is better?
- Eligibility for a car loan
Loan is an amount of money which is borrowed by the bank or any organization by people to cater the needs that fall beyond their monthly income. People take loans for hefty purchases, like property, vehicles, or for any private function for which they opt for a personal loan. However, there is a special category of loan specifically for purchasing an automobile or a car. Like any other loan, the borrower repays the loan in installments. The tenure of the loan usually lasts for 24 to 60 months (2-5 years). This type of loan is also known as Financing. Wondering what financing means? Its nothing but providing funds for business activities, or making purchases, quite identical to that of a vehicle loan, in which the money is borrowed for purchasing a car. Car loans apply most of the legalities which are the same as any other loan, however there may be a few additional taxes included.
The question stands, if vehicle loan and other loans are so alike, then why should one opt for a vehicle loan? For understanding this, lets discuss the main DIFFERENCES between the two:
- Secured and unsecured- Personal loans are unsecured and vehicle loans are secured, with the car being purchased as the collateral to it. This is the biggest difference between the two. The vehicle’s total ownership comes to the borrower only when the loan is fully paid.
- Difference of purpose- a personal loan is availed to cater any financial need, its simply a sum of money borrowed. Whereas a vehicle loan is specifically for the payment of the car purchased.
- Interest rate- the interest rate for a personal loan is much higher in comparison to that of a vehicle loan, this is due to the higher risk involved as the loan is unsecured.
Now we know that if you’re thinking of purchasing a car, and taking a loan for the same, a vehicle loan is the smart option.
Who is considered ELIGIBLE for taking a vehicle loan?
While sanctioning a loan the bank considers a number of factors which reflect whether the individual will repay the loan on time or not, to prevent any scenario of defaulters. The factors are as followed, they are generalized after a study upon ongoing criteria in the banks, it may differ:
- Age- the age factor plays an important role in sanctioning a loan. The banks seek individuals who have flowing cash in hand, and are going to have the same in the near future or at least up to the duration until the tenure of loan lasts. The criteria also demands for the individual to be at least 18 years of age, legally an adult and the maximum age limit goes up to 75 years.
- Salary- a working person should earn at least Rs. 10,000/- per month or Rs. 3,00,000/- per annum. This is the generalized limit it may depend upon the lender too.
- Employment- a self employed person, someone who runs a business of his/her own should earn the profit of the lower limit 4,00,000/- per annum.
- Employment stability- banks look out for people who have a stable source of income. An employee should be in the line of work for at least 1 year continuous, and for a self-employed individual the criteria is 3 years in business.
- Maximum loan limit- there is a maximum amount that can be lent, it depends upon the income and its stability and all of the factors mentioned above. For a salaried professional, generally it is 48 times of the net monthly income, as the maximum amount. For a self-employed person it is 4 times the net profit .
- Person engaged in agricultural activities- for them the minimum earning criteria is Rs. 4,00,000/- in total this may be after adding up the income of the co-applicant. Their maximum limit is 3 times of the annual net income.
Another interesting point about a car loan is that you can apply and get two car loans at the same time. However, it is not as easy at it sounds. The bank will look closer into your eligibility, stability, credit score and all of the other factors. The credit score plays an important role here too, as you can get better a interest rate on the second loan when your credit score is above average.
If you’re planning to buy a car, opting for a car loan is the smarter option than going for a personal loan. You may claim complete ownership of your vehicle only after the tenure is complete, nevertheless the lower interest rates and more flexible eligibility is worth it!