Define Auto Loan –
A auto loan is a type of loan that bank provide to purchase automobiles like car, bike etc. Applicants can use the auto loan for purchasing a new car, used car from dealer or private institutions. Like all other loans, borrowers must pay back this loan as per the agreed terms with the bank. Borrower cannot claim tax deduction on the total principal and interest that they had paid to bank in a financial year like the home loan as car is luxury product.
Applicant can apply for the loan and submit the required documents. Loan person would be required to submit identity proof, address proof, bank statement, salary slips, Form-16, and PAN card along the photograph. Post this, the bank would check the Credit Score worthiness of the applicant, and then would make the loan offer. Majority of the car buyers apply for the auto loan while making the purchase. If the buyer has good credit score and is meeting the above mentioned requirements, then they can get loan at a lesser interest rate as compared to individual with lower credit score.
Post acceptance of the offer, the funds will be transferred to the applicant’s bank account as a lump sump. Borrower would have to then make the monthly payments to the bank depending on the payment date selected by them. Monthly payments also depend upon the loan amount, interest rate and loan tenure. Interest rate will also depend on the credit history, loan tenure, occupation, income etc.
What if you don’t pay back Auto Loan?
Auto loan is basically a secured loan where bank can seize the vehicle in case of non-payment of loans. The processing of loan does take more time in comparison to the other loans. The major difference between auto loans and the other consumer loan is that auto loan is a secured loan as it must be used to purchase the vehicle whereas personal loan can be used for anything hence are not secured. Interest rate on auto loans are hence less as the lender is taking less risk as they can seize the vehicle to cover the unpaid loan if required. Applicant should cross check the interest rate among lenders before finalizing the lender. They have to take care that long loan duration means you are paying more money to the lender.