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Car loan is a type of loan provided to consumers to buy their dream car. These are usually offered for between 5-7 years and are easy to get if one have a minimum income level to qualify. Very often the automobile dealer will have a tie-up with a lender to offer loans to his customer at a good rate. The interest rate of car loans depends on the Flat Rate and Reducing Balance method.
Here the principal amount remains same for the entire tenure of the loan. The total interest is divided over the number of installments to derive the EMI.
It means reducing the paid-up principal amount from the outstanding loan amount. The interest paid is calculated on outstanding principal balance. Generally car loans don’t require a guarantor but if the customer’s income does not meet the credit criteria, then he will be required to have a guarantor for his loan. Guarantor can be his/her spouse, if employed, or a third party guarantee is also will do.
Banks charges processing fees on such loans, it is a one-time charge taken for processing and legal paperwork. At the beginning of the period, the bank requires you to pay 2-4 percent of the loan amount as processing fees. For example, if you take Rs.5 lakh at 15% for 5 years (60 EMIS) and charges you 2 percent as processing fees, you are in effect paying an amount of Rs.10,000.
Before getting the loan for the purchase of the car the borrower should know about the following things :