car loan

Some common misconceptions about car loans.

A 28 year old man after getting his first promotion decides to buy a car. After all, who will not carve for comfortable rides in the suede seats and air conditioning of cars, instead of sweaty bus rides and long queues for tickets? Although instead of spending a huge chunk of his savings he decides to opt for a car loan scheme instead which he can pay off via EMIs. He decides to choose the lender after comparing the best car loans in the market and not by viewing the advertisement that he gets over his phone.

Most of the automobile customers are nowadays opting for a car loan, as it is a short or medium-term loan and is getting individual help from preventing to put up a dent in one’s savings. This is true even for those individuals who have considerable disposable income. However, many such purchasers are informed of their financing options by their car dealer in an off-hand manner, that creates more confusion. We have listed some lies about car loans that are spread by the deals.


  1. One can get up to 100% financing for their car: Many of the dealers in the market advertise 100% financing on the car loans, which basically means that the loan will cover up to the full cost of one’s automobile. This is usually not the case and even if it is, such a loan will feature a much higher rate of interest. A majority of auto loans can be availed for up to 90% of the invoice value of the car. This again means that if an individual wants to avail a car that costs INR 5,00,000 he or she will have to pay at least INR 50,000 from his or her own pocket, A few financial institutions may also provide up to 80% to 85% financing as well, depending on one’s previous relationship with the lender and such other factors like an individual credit score.
  2. One should go for a 0% interest loan: Many dealers try to tempt customers with a 0% interest financing, but an interest-free loan is not always the hassle-free, economic deal that it promises to be. Often, the maximum term for an interest-free, and economical deal that it promises to be. Often it happens that the maxim term for interest-free loans is less than 3 years, which might be too short while providing sufficient financial flexibility to the borrower. The down payment amount might also be increased in order to reduce the loan amount. If the dealer is offering a 0% interest on auto loans, then one must make sure he or she does not inflate other charges to compensate.
  3. Applying for a car loan through a car dealer or it might be rejected due to one’s poor credit score: The impact of one’s credit score cannot be influenced by their auto-dealer. While it is generally true that a poor credit score will mean that one pays more interest, requests for auto-finance loans are rarely rejected because it is a secured loan with the car being the collateral. The creditor will take up additional factors like employment history and income level into account before they fix the term and conditions such as rate of interest and tenure of one’s car loan. If the individual passes the car loan eligibility criteria then he or she will get the loan.
  4. One should apply through a dealer to get the best rate of interest- Applying through a dealer means that all of the negotiations take place with the seller of the car and not with the finance provider. This may not always be the best option to go as it is unlikely that the dealer will shop around in order to get a better deal. To avail of the best deal, one has to spend some time doing some leg work and compare the different car loan options that are to be offered.


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