Applying for a car loan? Here are 5 tips to increase eligibility

Posted by neha sharma on May 27th, 2019

With the increase in lenders offering car loans, buying your dream car can now become a reality. A car loan is one of the most popular loan offerings today. It is a secured loan where the lender gives funds to purchase a car. Since this loan is secured, the car loan interest rate is lower than other loans.

Before opting for a car loan, it is important to check your eligibility for such a loan. Most lenders have their eligibility criteria clearly displayed on their website. However, to double check, you can use a car loan eligibility calculator to find out the amount of loan that you are eligible for. Once you find out this number, you can decide whether that amount is enough to get you your dream car or not.

However, the number that a car loan eligibility calculator decides is not the final word on the actual amount that the lender will disburse to you. There are things you can do to improve your eligibility for this loan.

Here are 5 tips to increase car loan eligibility:

1. Joint loan application:

In case you don’t have enough income to apply for a higher loan amount, consider making a joint loan application. In joint loan applications, incomes of both the applicants are clubbed which helps to raise the loan amount that can be sanctioned.

2. Repay debt:

Outstanding debts are one major factor that lenders consider while approving loans. Standard financial prudence dictates that not more than 50% of the monthly income should go towards loan installments. Lenders check not only the amount of installments but also the type of loans. Generally, loan applicants who have a lot of unsecured loans such as credit card debt and personal loans are riskier to lend money to. One way to increase eligibility is to prepay such loans and reduce the general loan outstanding.

3. Make a larger down payment:

Lenders do not finance the entire amount of the car’s price. The loan to value for such loans is between 70% to 80%. This means the balance amount has to be paid by the loan applicant. One way to improve eligibility is to make a larger down payment and apply for a smaller loan.

4. Improve your credit score:

Your credit score is a snapshot of your repayment history in terms of loan installments, credit card debt etc. It is recommended to check your credit score and detailed credit report in case any mistake needs correction. Your credit score can also be improved by paying loans and dues on time.

5. Check for pre-approval:

Existing banks may pre-approve customers with whom they have a good banking relationship. If you’re looking for a car loan, you can try approaching your existing bank to see if you’re pre-approved. Pre-approval does not guarantee a loan acceptance, however.

Most lenders have a car loan EMI calculator on their website. This calculator will help you plan your installments for the loan. These calculators also check your loan eligibility since one input in these calculators is your income. Some lenders have specific car loan eligibility calculators on their websites. Before you apply for a loan, remember to do this due diligence.