Seeking a Lower Car Loan Interest Rate? Be Aware of These Factors

Posted by Anvi Sharma on May 3rd, 2017

Doesn’t matter how tempting it would be to realize the dream at the earliest, you can’t take your eyes from the wallet that needs a fair amount of cushion amid the sharply rising inflation. And it applies to even a car which most of you would like to own and drive in the city, town or a village you would belong to. Driving an all-new car on the roads give so much of delight and the experience you exude while doing so remains etched in the memory throughout your lifetime. But it won’t be great if you just soak in that magnanimous experience and not take a care of your dear wallet. Let’s come straight to the matter by emphasizing the importance of car loan interest rate.

It’s a fact that most of the cars that you see in the market are financed by banks and non-banking finance companies. Few or say many do not bother much on the interest rate and end up burning their fingers by paying massive interest over the loan term, making their pocket inept to handle other responsibilities that could be equally important to their cause. So, you have got a brief idea of what car loan interest rate means to your financial stability. For your comfort, there are few things, which if you take into consideration, would allow you to buy a car at a lower interest rate. In this write-up, a detailed description of the factors that can enable an affordable car acquisition is made. Take a look at those factors to tread a path wherein your car can race all the way.

Factors

Credit History- A credit history indicates a lot about your worthiness for the car loan you are applying for. Lenders give a close look at your repayment track of the loans or credit cards, if availed earlier. If the CIBIL score comes higher, you give yourself the best chance to negotiate with the lender for a lower interest rate. But if the credit history shows continuous defaults from your end, you would have to either bear a higher rate or face the rejection of your application by the lender.

Amount of Down Payment- The down payment is also a critical factor while convincing the lender to lower the interest rate on your car loan. Normally, the car financing companies provide a loan of upto 85%-90% of the on-road price, which is the aggregation of ex-showroom price+RTO+registration charges, insurance premium, etc. The remaining 10%-15% has to be paid upfront as a down payment, which can also be called as margin. If you make a greater down payment, the lender would have lesser amount to lend, thereby giving you the bargaining power for a lower rate.

Interest Rate Mechanism- Your car loan interest rate is either based on fixed or floating rate basis. With a fixed rate in place, you would service the loan paying the same amount of EMI throughout the loan tenure. But with a floating rate, the scenario will change over time and the loan servicing would be based on the market. Now, the new floating rate car loans are based on Marginal Cost of Lending Rate (MCLR), which is applicable for loans disbursed on or after 1st April 2016.

The floating rate comes into the action the moment the Reserve Bank of India made a change in repo rate, which is the rate at which the apex bank lends to commercial banks. If the repo rate gets slashed, the bank lowers their lending rate and the customers get the benefits thereof. However, on an upward movement in repo rate, the lending rate can go up at the same time. While most of the public sector banks offer a car loan at floating rate based on MCLR for new borrowers, many private counterparts have a fixed rate car loan at your disposal. You should check out the EMI on a fixed rate car loan offered by the lender and see whether it fits into your pocket or not.

If it does come easily to your wallet, I would rather suggest you to go with the fixed rate option as the loan tenure for buying a new car is restricted to 7 years and 5 years for a used vehicle. Just in case, if the favourable interest rate cycle of today reverses and surges up the hill, you could be in a quandary as to how to drive the car without any rough edges with a floating rate vehicle loan.

Income- The income you churn out each month goes a long way to deciding the interest rate you need to service over the loan tenure. Needless to say, the greater income would repose confidence in the lender about your smooth repayment capability and vice-versa. If you do have a higher income to suffice the payment of Equated Monthly Installments (EMIs), chances are high that you would be successful in convincing the lender to lower the interest rate.

So, these were the factors to be kept in mind to get the car loan interest rate lowered by the lender and enjoy a dream driving with family and friends. Do follow these factors and save your hard-earned money from becoming the scapegoat of massive interest repayment.