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Car loan refinancing is an effective financial strategy for car owners looking to reduce their monthly payments, secure a lower interest rate, or modify the terms of their existing auto loan. By replacing your current car loan with a new one, you can take advantage of better financial conditions, improved credit scores, or favorable market interest rates. This guide provides an in-depth look at car loan refinancing, its benefits, eligibility criteria, the application process, and essential considerations.
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Benefits of Car Loan Refinancing
Minimal Documentation
Quick Loan Approval and Disbursal
Lower Interest Rates:
Improved Cash Flow:
Eligibility and Application Process:
Eligibility Criteria
To be eligible for car loan refinancing, applicants generally need to meet the following criteria:
- Loan Age: The existing car loan should typically be at least 6 months old to show a payment history.
- Loan Balance: The remaining balance should be within the lender’s minimum and maximum loan amounts.
- Car Age and Mileage: Most lenders prefer cars that are less than 10 years old and have fewer than 100,000 miles.
- Credit Score: A good credit score (typically 660 or higher) can help secure better refinancing terms.
- Income and Employment: Stable income and employment history are necessary to demonstrate repayment ability. (Avg Income : ₹25000 pm)
- Equity in the Car: The car’s value should ideally be more than the remaining loan balance.
Application Process
- Assess Your Current Loan: Understand the terms, remaining balance, interest rate, and any prepayment penalties of your existing car loan.
- Check Your Credit Score: A higher credit score can help you qualify for better rates.
- Compare Lenders: Research and compare offers from various lenders, including banks, credit unions, and online lenders.
- Gather Documents: Prepare necessary documentation, such as proof of income (pay stubs, tax returns), proof of residence (utility bills), car details (registration, insurance), and information about your current loan.
- Apply for Refinancing: Submit applications to with us. Pre-approval processes can help you understand the potential terms without impacting your credit score.
- Choose the Best Offer: Compare the offers based on interest rates, loan terms, monthly payments, and fees.
Interest Rates and Charges:
Interest Rate: Vary between lenders but typically range from 12% to 18% per annum. Fixed and floating rate options may be available.
Processing Fee: Usually 0.5% to 2% of the loan amount, covering administrative costs.
Prepayment Charges: Some lenders impose a fee for early repayment, often 1% to 3% of the outstanding loan amount.
Title Transfer Fees: Fees for transferring the car’s title to the new lender.
Repayment Options:
- Fixed Monthly Payments: Standard repayment method with predictable monthly payments.
- Flexible Payment Plans: Some lenders offer flexibility in payment schedules, allowing for bi-weekly or customized payment plans.
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Questions & Answers
Why should I consider refinancing my car loan?
Refinancing your car loan can potentially lower your interest rate, reduce your monthly payments, or shorten your loan term, saving you money in the long run.
Can I refinance my car loan if I have bad credit?
Yes, it’s possible to refinance a car loan with bad credit(>=650), but you may face higher interest rates. However, improving your credit score before refinancing could help you qualify for better rates.
How do I know if refinancing my car loan is worth it?
You can calculate your potential savings by comparing your current loan terms with new refinancing offers. Consider factors like the new interest rate, loan term, and any fees associated with refinancing to determine if it’s the right choice for you.
As a general rule of thumb, lenders may offer loans covering up to 100% of the car’s purchase price for borrowers with excellent credit and stable income. However, it’s more common for lenders to require a down payment, typically ranging from 10% to 20% of the car’s purchase price, especially for borrowers with less-than-perfect credit.
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Important Terms & Conditions
For example, if you take a loan of Rs. 7 lakhs at the rate of 9.45% with a repayment tenure of 5 years, your EMI will be Rs. 14,638. The total payable amount at the end of 5 years would be Rs. 8,78,280. Therefore, you are paying a total interest amount to the tune of Rs. 1,78,280. This, however, excludes other applicable charges which can be quantified as under: Loan Processing Charge @ 2% = Rs. 14,000, Car Valuation Charges = Rs. 260 per lac, Documentation Charges = Rs. 500, Amortization Schedule Charges = Rs. 200.
Aviirafinserv.com services are free of cost. We do not charge any fee from any of our customers. Loans are originated, booked, and serviced by our partner Banks/NBFCs. Subject to credit appraisal at the sole discretion of our partner Banks/NBFCs and terms & conditions as agreed under the individual loan agreement. Our Partner Banks and NBFCs don’t offer personal loans that require repayment in full within 60 days or less from the date the loan is issued. Subject to the necessary KYC and verification. In case of change of payment mode or swapping your Post Dated Cheques, additional charges are applicable. Also, depending upon the lender bank, prepayment options may or may not be available and the applicable charges may vary accordingly.
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