All You Need to Know about Car Loans

If you are looking to buy a car and are not keen to do a single lump payment for it, then you might want to consider taking a car loan. A car loan is a personal loan that lets you purchase a vehicle and pay for it in monthly installments. You could take a car loan from a public or private bank, a finance company, or a credit union. In return for being able to split up the cost of the car into convenient installment amounts, you have to pay an interest on top of the price of the vehicle. Effectively this increases the cost of the car but there is a benefit in not paying a huge sum of money at one go.

When you apply for a car loan, remember it has three major components: The amount of money being borrowed for the purchase of the car, the percentage of interest payable annually on the amount of money borrowed, and the period or term of the loan in which you have to repay the loan amount. All these three factors will together decide the monthly installment you will have to bear. Sometimes a fourth element, a pre-payment penalty is also involved in a car loan. That is, when you decide to pay off a car loan early before the term ends, a penalty fee is charged. This is because the lender loses out on interest payments that you would have likely paid had the loan continued. To reduce that loss, a prepayment penalty is charged. But not always, there are car loans that waive this penalty fee and you could look for such a car loan.

Apart from providing a proof of your identity and residence, whether you run your own business or are a salaried employee of a company, you are eligible to apply for a car loan if you have a stable job on hand that provides a steady income, you have proof of income and a CIBIL score greater than 750. While credit scores range between 300-900, numbers closer to 900 are preferred by lenders because it shows your capability to repay loans. While it is true that CIBIL scores play a key role in determining whether or not your car loan is approved, remember that it is the lender who makes the ultimate decision to either sanction a car loan or not.

While you can apply for a car loan simultaneously to a number of lenders, ensure it does not damage your credit score. But in the unfortunate circumstance that your car loan is rejected, then it could mean either of two things. Either there is an error in your credit report that needs to be corrected immediately, or you are a borrower with bad credit seeking a car loan. While you can still get a car loan if you have bad credit, the downside would be that you might be asked to follow one of these three conditions: pay a higher rate of interest, or put forward a larger sum of money as down payment for the vehicle you have chosen, or be forced to accept a shorter loan term. Since lenders take a risk by lending money to you when you have a low credit score, they charge more interest to mitigate the risk of nonpayment of the loan amount.

Direct lenders like community banks, small credit unions, finance companies, and even car dealerships that work together with direct lenders compete to grant car loans for people with bad credit. And this is contradictory to popular belief that bad credit scores do not attract lenders for a car loan. Here are two companies that provide the best car loans for bad credit: car.Loan.com and Auto Credit Express. Specializing in car loans for people with bad credit, car.Loan.com has a no obligation application policy, does not charge any fees for the loan application and offers affordable payment options. Best of all, same day approvals are common with this lender. And, if you have bad credit, Auto Credit Express offers car loans with low-interest rates, even for an older, high-mileage vehicle. As a company policy, it deals with people having low credit scores and is popular for its excellent customer friendly service.

But do take care to get the best car loans for bad credit that does not demand your vehicle as collateral, and work toward boosting your credit score while you shop for car loans.