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The 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 installment 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 installment. 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 behavior. 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.
A word of caution
If you already have a dollar amount you want to work with and you are dealing with cash
then great. If a loan is going to be needed then approach your bank or credit union
and find out where your goal post are located. In plain and simple language don't go
over board. Do not submit a credit application to any dealership until you find the
vehicle you actually wish to purchase , most likely your bank can give you a better rate.
Lesson 101 each time you submit andapplication at a dealership it will drag your credit
score down. Don't let anyone tell you it doesn't happen because it does. Once they
run a report they hit your credit and each point lost can be the difference of driving off
the lot with the car you want or the one you drove there with.
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 installment 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 installment. 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 behavior. 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.
A word of caution
If you already have a dollar amount you want to work with and you are dealing with cash
then great. If a loan is going to be needed then approach your bank or credit union
and find out where your goal post are located. In plain and simple language don't go
over board. Do not submit a credit application to any dealership until you find the
vehicle you actually wish to purchase , most likely your bank can give you a better rate.
Lesson 101 each time you submit andapplication at a dealership it will drag your credit
score down. Don't let anyone tell you it doesn't happen because it does. Once they
run a report they hit your credit and each point lost can be the difference of driving off
the lot with the car you want or the one you drove there with.
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