Buying a car is a huge decision. You may explore a car loan if you do not want to pay the entire amount for the car upfront. Whether you plan to get a used car loan or a new car loan to fund the purchase, there are several factors that can impact your purchase decision. The interest rate is one such important factor. You will want to go for the lowest car loan interest rate to save money. So, here are 5 ways to get lower interest rates on car loans.
Shorter loan tenures
You may be tempted to go for a longer loan tenure as you may be able to pay lower monthly instalments. However, the longer the loan tenure, the higher the interest rate. Shorter loan tenures have lower interest rates. It is advisable to choose a shorter loan tenure while buying a car. You will also be able to pay off the car loan sooner with a shorter repayment tenure.
Improve credit score
Your loan offer depends on your credit score. If you have a credit score of 700 or higher, you can get a loan offer with competitive car loan interest rates. To improve your credit score, pay off your outstanding credit card and other loan debts. Improve your credit profile by making timely payments of existing loans, rectifying errors in your credit report, and monitoring your credit health.
Increase the EMI amount
Check with your lender about increasing the EMI amount, whenever possible. It will help towards a quicker repayment of the overall loan amount. You will end up saving a significant amount of interest by paying off the loan quicker. Make sure to choose an EMI amount that is manageable as per your monthly income. Depending on the type of the loan, there may be fees you need to pay, which will apply as per your loan terms.
Pay an extra EMI
Making an extra EMI payment every year will shorten the loan repayment term immensely. This, in turn, would save money on interest payments. When you repay a part of your loan, it will be considered as part-prepayment. You should check the part-prepayment charges before paying off a part of your loan.
Higher down payment
A higher down payment results in a lower outstanding amount, which leads to a lower interest rate. Consider making a significant down payment to reduce the total loan amount.
The interest rate on car loans depends on the lender’s policy. Opting for shorter loan tenures, increasing EMIs, and a higher down payment can all contribute to a lower interest rate. Keep these tips in mind the next time you are looking to buy a car with a loan.
Factors influencing car loan interest rates
There are several factors that affect your car loan interest rates. Some of these factors are as follows.
Credit score: Lenders assess your creditworthiness primarily through your credit score. A higher credit score indicates lower credit risk, leading to lower interest rates. On the other hand, a lower score may result in higher rates or difficulty securing a loan.
Loan term: The duration of the loan term impacts the interest rate. Shorter loan terms typically come with lower interest rates as they pose less risk to the lender. Conversely, longer loan terms may have higher rates to compensate for the extended repayment period.
Down payment: The size of the down payment affects the interest rate. A larger down payment reduces the loan amount, lowering the lender's risk and potentially leading to a lower interest rate. Conversely, a smaller down payment may result in a higher interest rate to offset the increased risk.
Bajaj Finance offers used car loans and new car loans at competitive interest rates with flexible repayment plans. With our car loans, you can get high-value loans by fulfilling simple car loan eligibility criteria and submitting just a few documents. Our easy online application process and flexible tenures make borrowing hassle-free for you.
