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Why is a credit profile important ?
To the financier your credit profile is the most important factor he will consider before funding you. Your credit profile tells him if you are able to and intend to pay back the loan to him.
What are the specific components of my credit profile ?
The components are age, profession or occupation, income and financials, previous credit history and your home, ie, if you live in a rented accommodation or in your own home.
What can I do if my credit profile does not match the financier's requirements ?
If your credit profile does not match the financier's requirement you can strengthen it by bringing in a co-applicant or guarantor who would be able to match the requirement.
How to improve your credit profile ?
If you are salaried and over 60 years of age it is unlikely that you will be financed based only on your profile, most financiers would insist that you bring an additional guarantor or co-applicant whose age is less than 60. It would be better for you to take one of your immediate relatives (son, husband, wife, daughter ) as co-applicant. The age limit for self employed is 65 years.
If you are self employed and your income is between Rs. 45,000 p.a. and Rs. 60,000 p.a., it is unlikely that you will be financed based only on your profile. Most financiers would insist that you bring an additional guarantor or co-applicant whose income added with yours is greater than Rs. 60,000 p.a. It would be better for you to take one of your immediate relatives (son, husband, wife, daughter ) as co-applicant. If you are salaried the minimum income is normally Rs. 100,000 p.a.
If you have been in employment for less than 1 year and total number of years in service is less than 3 years it is unlikely that you will be financed based only on your profile. Most financiers would insist that you bring an additional guarantor or co- applicant whose years in service match the requirement. It would be better for you to take one of your immediate relatives (son, husband, wife, daughter ) as co-applicant. If you are salaried the minimum income is normally Rs. 100,000 p.a.
How much finance are you eligible for ?
The quantum of finance you can get depends on your income, your ability to repay and the financier's LTV norms for the car.
What documents do I need to establish proof of income ?
For income, most financiers look at your IT returns for the last two years. Financiers also look at the nature of income. Some of them do not consider speculative income (especially from the stock market), rental or agricultural income. Some financiers discount such income by up to 50% in their workings.
What are the pre-conditions on the amount I earn and its relation to the amount of finance I can usually get ?
Generally, if you have an income of Rs. 60,000 p.a. not including speculative / non- recurring income, most financiers would fund you 80 % - 90 % of the value of a small car. Similarly, if you have an income of Rs 100,000 p.a., again, not including speculative / non-recurring income, most financiers would fund you 75 % - 85 % of a premium car.
Do loans previously taken play a role in determining the amount of finance I can get now ?
Yes they do. Fixed obligations such as an earlier loan or certain deductions in the case of salaried people are normally removed from the income by most financiers before determining the finance amount.
What are Negative Areas and Negative Credit Profiles ?
Most financiers have an internal list of geographical areas and professions / business/ companies that are created based on their previous credit experience. Loans for customers from such areas or with such profiles may be rejected or may be more closely scrutinised before approval.
Can I get car finance without submission of income documents ?
Yes, you can, under the No Income Proof scheme offered by some financiers.
Can I get finance for accessories ?
Most financiers do not finance accessories other than those which are factory fitted like air-conditioners. Some may fund music systems and such other expensive accessories.
Can I get finance for Insurance and Registration ?
Most financiers do not fund insurance and registration. The LTV is worked out on the ex-showroom price of the car and does not include insurance and registration charges.
What is the difference between a Flat interest rate and a Reducing Balance interest rate ?
Take a simple example. Suppose you have taken a loan of Rs. 5 Lakh at 10% interest. You repay Rs. 25,000 in the first instalment. If the 10% interest continues to be applicable on Rs. 5 lakh after your first repayment, you are paying a "Flat Interest Rate". But, if 10% interest is applicable now on Rs 4.75 Lakh, you are paying a "Reduced Balance Interest Rate".
What is a 0% interest scheme ?
In this scheme you are not charged any interest. You only pay back the principal amount. However, be careful to check out the hidden costs under such schemes. There are some disadvantages in this scheme - the amounts financed are low and the tenure is short.
Why is the interest rate higher for a used car ?
A used car carries a higher Asset Risk than a new car. Therefore, interest rates on used car rates are higher.
Is it better to go to my current financier ?
Yes, if you have a very good repayment record for an earlier transaction, you are most likely to get a lower lending rate. Even your loan processing could be faster. However, do check out some competitive offers before taking a final decision.
What is a default ?
Repeated prolonged delays and dishonoured cheques are deemed to be defaults in repaying your loan. Most financiers would expect you to turn in the asset on request, failing which they may seize your car, after serving you proper notice.
What happens if my cheque bounces ?
Dishonouring a cheque is a criminal offence. Legal proceedings may be initiated against you. Your credit profile could be seriously damaged.
What happens if I delay some instalments ?
You are advised not to delay your instalments because frequent delays may affect your credit profile and might make further borrowing difficult and costly. However, under rare circumstances, if you delay an instalment, most financiers would charge you a delayed payment charge, which could be as high as 3 %, compounded monthly. This could be twice the rate at which you borrowed.
Can I get a temporary relief from paying my instalments ?
Yes, in some cases you can, if you inform your financier in advance. This should only be for a few days and you will have to pay delayed payment charges.
Can I Pre-close or Pre-pay a loan ?
Yes, you can, but conditions apply. Please refer the section on Pre-Closure.
What happens if the car meets with an accident ?
In the event of an accident you will have to inform your insurance company /agent. They will send an assessor to assess the damage to the car. The insurance company will process your claim and pay it directly to the financier, unless you have taken an NOC from the financier, in which case the payment will be made by the insurance company in your favour. The financier will normally give an NOC if you are regular in your payments. In case of a complete loss, the financier would receive the payment directly from the insurance company.
What is an Exchange Scheme ?
Some dealers may offer you an exchange scheme whereby your existing car can be upgraded to a new one. The dealer will purchase your car at a price depending on the model, year and the condition of the car. The value of your old car is then adjusted against the purchase price of the new car. You could also get the balance amount financed.
Can I sell the car during the tenure of the finance contract ?
No, you cannot sell the car unless you repay the loan. An NOC is required from the financier before you can sell the car.
What happens when the loan is fully paid off ?
After the loan has been fully paid off, the financier will issue Form 35 with a covering letter (NOC) to the RTO for cancelling their name from the R/C book. A similar NOC will be issued to the insurance company requesting for the deletion of their name from the policy.
What is De-Dupe ?
Most financiers have compiled a list of defaulters, their own, as well as from other available sources. Details of all clients are run through this list to check if the same client had applied for a loan and if yes, the file is rejected.
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