Auto financing industry is growing leaps and bound with the increased demand for vehicles among people. They are no longer luxuries; rather necessities of modern life. Scores of auto financing lenders have cropped up in the loan market to help people in this regard. They are giant private sector banks, financial institutions, and individual lenders. The parameters of loan approval vary fro lender to lender. In this article we will talk about the common parameters required by all lenders. Factors that determine the approval of car financing are down payment, repayment capacity, ability to pay security and credit score. We will discuss them in detail.
Down payment capacity
There is a stark difference between car loans and other loans for personal use. Car loans never cover the complete value of the car. At maximum lenders can offer 85% finance of the total cost. The rest amount is borne by the borrower. Hence, before approving loans, lenders make sure that you are capable of paying minimum amount of down payment. However, there is no hard and fast rule regarding how much you pay as down payment. The more you pay the less you borrow and the less burdensome is the loan for you.
Repayment capability
Like all loans, car loans are for no charity. You need to repay the loan amount within the mutually agreed repayment period. Before approving the loans, the lenders make sure that you have enough resources to maintain regularity of repayment. For employed borrowers, auto lenders check employment status, salary, employment period and the monthly instalment they can afford. Self employed persons have to show their income source to the lender assuring him regarding the repayment capability.
Security pledging
No doubt the car you buy remains as a security to the lender. But, the value of the car depreciates over the repayment period. To have a solution for this lenders have come up with the additional security clause. This clause requires the loan applicant to pledge any immovable security to avail the loan. The security lowers down the rate of interest and offers other borrower friendly advantages like longer repayment period and lower monthly instalment. However you can avail car loans without security too.
Credit checking and credit score
Before approving you car loans, the lenders check your credit score. It is the result of your past credit behaviour. Late payments, defaults, arrears on past loans make your credit score bad. Lenders hesitate to offer car loans to bad credit borrowers due to their vulnerable past. If they offer they charge exorbitant interest rate. To get rid of this you can pay a security against the loan amount. Along with, you can compare loan quotes of multiple lenders to find a lender charging competitive rate of interest.
Online application to car loans is advised. It makes your processing fast and hassle fre
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