Looking for affordable interest rates? Consider these 5 factors

Purchasing a four-wheeler in India today has become easy as getting any durable consumer products. You only need to pay a fraction of the cost and take the car on the same day. Several banks and financial institutes offer car loans at affordable rates and easy terms. Some basic features of the product are:

• You can avail of auto loans for new as well as used four-wheeler.
• The approval is quick, and the documentation procedure is minimal. Most of the time, they are taken care of the car dealer and the bank or other financial institutes.
• The tenure of such credit is usually around 1 to 7 years, depending on you.
• The car loan interest rate is either fixed or variable. Fixed rates remain constant throughout the loan term, while variable rates can change depending on the market fluctuations and economic conditions.
• Auto loan rates are usually lower in comparison to personal loans.
• You pay the interest amount and principal amount via EMIs.
• Lenders provide 100 per cent finance for the four-wheeler value. The range, however, is anywhere between 80-85 per cent.

When you hunt for the ideal car finance, you want the one that offers you lowest interest rate. A reasonable interest rate goes beyond a high credit score. There are other factors which affect them as well:

Vehicle age: Usually, the used car interest rate is higher than the new ones. This is because of its depreciated value. Owing to the lower price of the used vehicle and other associated costs such as funds to buy it, refurbish, store, and market used vehicle, the dealers recover the amount through high-interest rates. Also, used credit come with shorter tenure, with the dealership earning less. Hence, more the rate of interest.

Loan tenure: The shorter the loan duration, the lower the interest rates. The banks receive your funds instantly, and you can drive your four-wheeler without any worries. The lenders lure more customers by offering lower interest rates for shorter durations. Want to understand better how interests and terms affect your EMIs? Use the EMI calculator for the same purpose. This way, you can balance between your credit repayment and monthly expenditures.

Debt-to-income ratio: It simply means, the more money you need to direct towards the outstanding debts, the less likely you can repay those debts on time. This will be the perception of the lenders. Hence, they may not consider you worthy enough of car loans. The rates suffer in the process. At the same time, lenders also factor in the salary you earn. The higher your pay, the more confidence lenders have you will repay the loan on time.

Down payment: Do whatever you can to convince the lenders that you are reliable with funds. One such aspect is down payment. It should at least be 10-20 per cent of the total cost. You appear more responsible this way. The more money you can pay, the better. Your interest rates get better, and the duration reduces. If you are facing a tough time to get low-interest rates approved from the lenders, a down payment can make a difference.

Inflation: It is the degree to which the prices of the goods increase in the economy. Lenders raise their rates to counter rising costs. If the inflation is low, lenders are willing to lower the car loan interest rate.