Advantages of car loan

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What is a car loan? 

A car loan is a money borrowed by the bank to buy a car. The bank will pay 100% of the car value to the showroom dealer, so the vehicle will be yours after all the paperwork is done. The banks that are lending the money will be called lenders, and the individuals who are applying for a loan will be called borrowers. 

You'll have to pay a small principal amount as a downpayment before the bank sanctions the money to the dealer. So once you've made a down payment, the bank will sanction the funds to the dealer. And you'll have to pay the loan amount sanctioned in small EMIs ( Equated Monthly Installments) every month along with the interest rate until the loan is paid. 

You'll have to pay the monthly EMIs on time because it will negatively affect your credit score if you miss a single payment, and you'll have to pay extra charges for missing the instalment. And if you're unable to repay the loan amount, then the bank will seize your car and sell it to cover the loan amount. A lot of banks (like SBI or HDFC Car Loan) give you prior notice before selling the vehicle at an auction. 

Benefits of applying for a car loan

There are number of benefits you get by applying for a car loan. Some of them are mentioned below:-

1. Savings:- You don't have to give all your savings to buy a car. You can keep those savings for immediate future needs. And it's not advisable to buy a used car, because there isn't much money difference between a used and a new car. And if you buy a used car, you'll end up paying a lot more money for maintenance. In contrast, new cars get the benefit of free maintenance for several years. So you save a lot of money by purchasing a new car. 

2. Repayment:- Banks provide the flexibility to choose your repayment structure according to your budget. Before selecting the repayment structure, you can plan your budget before applying for a loan using the Car Loan EMI Calculator. There are a lot of EMI options given by the bank to the customers. You can repay the money however you want.

3. Collateral:- For a car loan, you don't have to give any asset as collateral. This is because the car you will be purchasing will act as collateral or security for the bank. So the good thing is that you don't have to give any collateral to get this loan. But the bad side is that you'll have to repay the amount on time because if you're unable to pay the loan amount, the bank will seize the car and sell it at an auction to recover the loan amount. 

4. Credit Score:- Your credit score plays a very important role while applying for a car loan. So if you have a nice credit score, you can negotiate the interest rate and other benefits with the bank. But if you have a low credit score, you can repay the Installments on time along with the interest rate, so by doing this, your credit score will increase slowly, and a good credit score will help you get a loan in future. 

5. Procedure:- The whole process is quick and hassle-free. If your credit score is nice, then you might get your application processed quickly. The whole application process is very easy to understand and follow. You have to submit some required documents, and the verification process for those documents will hardly take 2-3 business days. A lot of banks approve the car loan application instantly, so it becomes easier for them to process car loans immediately for other customers. 

6. Dealership:- A lot of car dealers have partnerships with banks. So if you want more discount on your car loan, you can search for financing institutions with partnerships. 

Conclusion:- 

Although many banks provide car loan, it is still advisable first to compare all your options and then choose the one that's best for you and has the lowest interest rate. 

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