A car loan is a simple and convenient financing option that helps you buy a car without having to pay the entire amount in one go. However before you apply for a car loan, you must know the eligibility requirements that are set by different financial organizations. Once you meet these requirements, the chances of your loan getting approved become higher. Over and above you also get a smoother loan application process.
What are the eligibility criteria for a car loan?
Whether it’s a personal or commercial car loan, the following eligibility criteria generally apply:
- Age requirement
- The applicant must be above the age of 21.
- For self-employed individuals, the age can vary depending on the lender’s policies.
- Income criteria
- For salaried employees, a minimum monthly income of Rs.15,000 is mandatory.
- Self-employed professionals must have a minimum annual turnover of ₹2-3 lakh, supported by a CA in the past two years.
- Lenders value applicants who have a steady income and employment stability.
- Employment stability and type
- It is important to have a minimum employment stability of 1 year.
- Credit score
- A credit score of 750 and above is ideal for securing a car loan.
- Applicants with a credit score between 650 and 700 can still qualify but might receive higher interest rates.
- Try to maintain a strong track record of repaying loans and credit cards. This will increase the chances of your loan getting approval.
- Residency
- To apply for a car loan in India it is mandatory to be an Indian citizen.
Documents required for a car loan
To ensure a smooth application process, you should have these documents handy:
- For Salaried Employees
- Identity proof (Aadhaar card, PAN card, Passport, etc.)
- Signature verification (Banker, Voters ID, Driving license, etc.)
- Proof of residence (Electricity bill, property registration, lease deed, rent agreement)
- Form 16/ IT returns
- Latest salary slips showing statutory deductions
- One photograph signed by the customer
- Self-employed Professionals
- Proof of residence (Electricity bill, property registration, lease deed, rent agreement)
- Signature verification (Banker, Voters ID, Driving license, etc.)
- A computation of income for the last two years, certified by CA
- P&L A / C and B / S for the last 2 years certified by CA
- One photograph signed by the customer
How to improve car loan eligibility
If an applicant does not meet the required eligibility criteria, here are some factors that increase the chances:
- If you have any overdue debts, then try paying them off and making all your payments on time as this will help increase your credit score.
- Lowering existing EMIs or consolidating debt can enhance the debt-to-income ratio.
- Maintaining ITRs, audited financials, and bank statements helps self-employed applicants improve their financial profile.
- If the primary applicant has a lesser income or credit score, adding a co-applicant or guarantor can help them qualify.
Checking eligibility before applying
Customers can verify their eligibility with the help of online tools offered by banks to avoid rejection.
Car loan eligibility calculators: These tools help evaluate eligibility based on income, credit scores and liabilities.
- Pre-approved loan offers: Banks offer pre-approved loans to existing customers based on their financial history, which can be used to assess eligibility.
Once you’ve met the qualifying requirements, streamline the application procedure to get quick approval. Do the required research on multiple lenders to compare the best options. However, if you already have a relationship with a bank, you can apply for pre-approved loans and negotiate interest rates based on your credit score.
FAQs
- How can I apply for a car loan?
Here are the steps to apply for a loan:
– Take a look at the lenders’ requirements.
– Choose the best interest and terms.
– Gather all the necessary documents.
– Submit your application either online or offline.
– Get your funds approved.
- How much car loan can I get?
The loan amount depends on your income, credit score and lender’s Loan-to-Value (LTV) ratio, which usually covers 90% of the vehicle’s value.
- What is the maximum repayment tenure of a car loan?
The maximum tenure you get to repay a car loan is different for each lender. However, most lenders offer a repayment loan tenure between 1 and 7 years.
