Know these 7 important things before taking a car loan, otherwise the bank will reject the file.

Buying a car is everyone’s dream and in today’s time, car loan has made it very easy to fulfill this dream. However, sometimes due to lack of complete preparation, banks reject your loan file, due to which not only your dream remains unfulfilled but also has a negative impact on your credit score.

If you are also planning to take a loan from the bank for a new or old car, then this news of ours is useful for you. We have brought for you information about those rules and nuances, by adopting which you can make your file ‘rejection-proof’. Let us understand these tips one by one.

View CIBIL Score

The bank first looks at your creditworthiness. For car loan, your CIBIL score should be at least 750 or more. If the score is low, the bank will either reject the loan or charge you very high interest. Check your score 3-6 months before applying for the loan. If it is less, then correct it by paying the old dues.

check eligibility

The bank gives loan on the basis of your income and nature of work. To take a loan, your age should be between 21 to 65 years. Companies give loans to salaried individuals only after seeing at least 1 year of continuous service and a certain minimum monthly income (usually ₹ 25,000+). At the same time, a businessman (self-employed) can get a loan by showing a stable business record of at least 2-3 years and Income Tax Return (ITR).

Income to Debt Ratio

This is the biggest reason due to which loans are rejected. The bank sees what portion of your total monthly earnings is going towards the already ongoing EMI. Rules say that your total EMI (including new car loan) should not exceed 50% of your net monthly income. If you already have several small loans running, close them before applying for a car loan.

Choosing the right down payment

Although many banks these days claim 100% on-road funding, it is wise to make the 15% to 20% down payment yourself. This reduces the bank’s risk and your file gets cleared quickly. Also, you have to pay less interest and the loan gets settled quickly.

To ensure that the file is not rejected, keep these documents ready in advance-

document type	Salaried	Self-Employed
identity proof	Aadhaar, PAN, Passport	Aadhaar, PAN, Voter ID
proof of residence	Electricity bill, rent agreement	Office/Home Address Proof
income proof	Salary slip of last 3 months	ITR of last 2 years
Bank statement	last 6 months	last 6 months

Interest Rate: Fixed vs Floating

While taking a loan, it is important to understand the type of interest rate. These are of two types – fixed and floating. In fixed rate, the interest rate remains constant throughout the tenure. In floating rate, interest keeps increasing and decreasing depending on the market (Repo Rate). Floating rates are often beneficial in the present times, but it is also important to keep in mind the uncertainty of the market.

Processing Fees and Hidden Charges

Don’t just look at the interest rate. Be sure to ask about file charges, processing fees and pre-payment penalties. Banks sometimes waive processing fees during festival seasons. If you want to repay the loan prematurely, will the bank charge you foreclosure charges? Make this clear in advance.

Avoid these mistakes-

1. When you apply for loans in 4-5 banks simultaneously, your credit score falls.
2. The bank can blacklist you if you give wrong information about income or address.
3. If your CIBIL is less, then you can take a loan by adding a co-applicant with a good CIBIL.

If you keep your documents transparent by following the rules mentioned above, then the chances of your file being rejected becomes almost zero. Always compare different banks before taking a loan, but do not apply for car loan everywhere.