What is the Car loan
A car loan (also known as an automobile loan, or auto loan) is a sum of money a consumer borrows in order to purchase a car. Generally speaking a loan is an amount of money that is lent to an individual, a business, or another entity. The party that lends the money is known as the lender, while the party borrowing the money is called the borrower. When taking out a loan a borrower agrees to pay back the full loan amount, as well as any interest (a percentage of the loan amount, usually calculated on an annual basis), by a certain date, typically by making monthly payments.
Car loans follow most of the same rules and procedures that apply to other loans. In most cases when purchasing a car, a borrower will specifically apply for a car loan; however, a consumer can also use a personal loan (a loan obtained by an individual to use at his or her discretion) for the same purpose. All car loans are for specific lengths of time, generally anywhere between 24 and 60 months, although some car loans can be for longer periods. This type of loan is also known as financing. Car loans generally include a variety of fees and taxes, which are added to the total loan amount.
Many consumers apply for car loans at their local bank. When applying for a car loan a borrower will usually begin by specifying how much money he or she wants to borrow. The borrower will then provide information about his or her financial situation, beginning with income (the amount of money he or she earns by working). Most lenders will require the borrower to provide some proof of employment, usually in the form of a pay stub (the portion of a paycheck that includes information about an employee’s earnings, which an employee keeps for his or her records) or a copy of a tax return (the form submitted by individuals when paying taxes). The lender will also check the borrower’s credit report. A credit report is a detailed record of an individual’s past credit (in short, borrowing) activities, whether in the form of loans or other debts (money owed). If the prospective borrower has a bad credit history, he or she may be ineligible for a car loan.
Often a bank or financial institution will preapprove certain customers for car loans. In these situations a consumer has a certain number of days (often 30, sometimes 45) to decide whether to seek full approval for a car loan. Because most borrowers secure a car loan before actually shopping for a car, when an application for a car loan is approved, a lender will generally give the borrower a maximum amount he or she will be able to borrow. The borrower is then free to use this money to purchase the car of his or her choosing; however, the borrower is not required to spend the full amount offered by the lender. For example, while a bank might approve a car loan of ₹ 50,000 for a long-term customer, that customer has the right to spend only a fraction of that amount.