With numerous establishments willing to finance for the car of your dreams, Car Loans have become extremely popular among all. There are different types of car loans and an individual needs to know which type of car loan is suitable for them.
There are two types of Car Loans:
Secured Car Loans
In Secured Car Loans, the lending institution requires collateral or security to approve the car loan. This guarantee can either be the car you are buying or any other asset of the individual that they wish to put forth as security. The rate of interest in these types of car loans is mainly reasonable.
Unsecured Car Loans:
Banks do not require any asset as a collateral or security deposit when an individual applies for an unsecured car loan. As there is no guarantee involved from the borrower side, naturally, the rate of interest is higher in this type of loan and varies from bank to bank. All most all the major banks and NBFCs provide car loans allowing them to buy the car of their dreams.
It is natural for an individual to get confused before choosing the right loan deal along with the appropriate lending institution. Thus, it is very important to carry out detailed market research for the best deals and suitable lenders. There should be complete transparency between the lender and the borrower. No hidden charges air terms and conditions should be present and must be clarified before the agreement itself.
Methods to Calculate Interest Rates
You can calculate interest rates in two different ways namely:
- Flat Rate Interest
In this method, the principal sum on which the interest computations are made remain simial during the entire tenure of the car loan. Then the overall interest is divided over the number of instalments, to get to EMI.
- Reducing Balance
Also known as the declining balance method, this method deducts the paid-up principal amount from the stupendous car loan amount. Depreciation value is charged in the starting which gradually decreases with time and is lower towards the end of the tenure. The interest rate you pay is on the renewed principal balance.
Along with loans for a new car, the market also offers loans for used cars. These various types of car loans signify the competition as well as the demand for car loans in the present scenario. It is pretty easy to avail a car loan if you fulfil the eligibility criteria and do not have a bad credit history.
Various banks and lending institutions provide car loans. Some of the leading car loan providers are: