Proof of consistent income is the most important element in obtaining a car loan in India. After all, the bank or other lender wants to make sure you have a consistent source of income so you can repay the loan on time.
What are the criteria for getting a car loan in India?
In India, vehicle loan eligibility differs from one lender to the next. Banks, on average, have more stringent qualifying requirements than NBFCs and other digital lenders. The following are the most important factors for vehicle loans in India:
- Each applicant must be between 21 and 65 years old.
- A consistent income is required.
- For salaried applicants, the cut-off is roughly Rs. 3 lakhs.
- 4 lakhs for those who are self-employed
- Have a high credit rating
- Maintain a steady job
If you’re unemployed, how can you get a car loan in India?
You could be on a break from work, in between jobs, on maternity leave, or enrolling in a course to improve your job prospects – the reasons for being unemployed are numerous and mostly genuine. Banks and other lenders, on the other hand, will want proof of income before accepting your auto loan.
Here’s how to get a vehicle loan regardless of your work situation:
Take a car loan against FD
It’s one of the most popular ways for unemployed people to get a car loan. You can use your Fixed Deposit (FD) as security for the loan if you have one with the bank. The lender interprets it as an OD (Overdraft) on your FD and sanctions the loan in this situation. If you have a joint FD, you must obtain the written approval of the other co-holder before applying for a loan.
Take a car loan with a co-applicant
When you’re unemployed, it’s one of the simplest methods to get a car loan approved. The co-signer must be employed and earn a consistent income. The co-signer is serving as a guarantee or security for your car loan in this scenario.
The co-applicant is held liable if you are unable to make your loan installments on time. So, before you get the co-applicant on board, make sure you explain the scenario to them fully. Read the vehicle loan agreement.
Offer a large down payment
Even if you are unemployed, putting down a large down payment on a car boosts your chances of securing a car loan. A large down payment significantly reduces the loan amount. A smaller loan amount reduces the lender’s risk, allowing them to grant your loan request.
Take a car loan against property
It’s comparable to a car loan secured by FD. The only difference is that your property is being used as collateral. However, keep in mind that if you don’t pay your loan EMIs on time, the lender may take possession of your home as payment.
Take a car loan against gold
You offer your gold jewelry as security, similar to a vehicle loan against property. If you don’t make your payments on time, the lender may sell the pledged decorations.
Choose a loan secured by your current vehicle
You can apply for a loan against your car if you already own one. In this situation, you put your old car up as collateral for your car loan. Loans against vehicles are typically for one to three years, with interest rates ranging from 14% to 20% per year. You can borrow up to 150 percent of the market value of your current vehicle when you apply for a loan against it.
Provide proof of alternative source of income
If you can show that you have another source of income, most lenders will approve your auto loan application. It could be a fixed deposit, rental income, a disability pension, or a retirement pension, for example.
When you give an alternate source of income, the lender is more confident that you will be able to repay the loan EMIs on time, which increases the likelihood of your loan being approved.
Having a strong credit score can help you win the game
To establish your creditworthiness – your ability to repay the loan – the lender looks at your credit score and credit history in addition to your income. The lender is more likely to approve your loan application if you have a good credit score and a favorable credit history with no negative consequences such as overdue dues or bankruptcy filings.
Here are some ideas to help you improve your credit score.
- Make timely payments on your credit card bills and loan EMIs.
- Your debt-to-income ratio should be reduced.
- Maintain the proper balance of secured and unsecured loans.
- Pay more on your credit card payment than the minimum. Pay it in full instead.
Multiple loan applications, loan denials, late or missing EMI payments, and pre-closing loans all hurt your credit score. So, before approaching a lender for a car loan, make sure to improve your credit score.
Show proof of stable residence
When applying for a car loan, you must present many KYC documents, including proof of identification, age, income, and address. Having stable residency proof while unemployed improves your chances of getting a loan. Because you’ve lived at the same place for a long time, the lender considers you less of a flight risk and is more likely to approve your loan application.
Choose a smaller car
Choosing a smaller vehicle minimizes the entire loan amount, lowering the lender’s risk.
What if none of these suggestions work?
If none of these suggestions work, you can opt for a low-cost used car. Several organized dealerships sell low-cost used cars in India. You may easily pay it out of pocket because the sale price is minimal.
Alternatively, once you’ve decided on a new car, you can ask a friend or family member who is employed to take out a loan in her name. The payments are subsequently made to the friend or family member, who then pays the bank on your behalf.
Conclusion
It is difficult, but not impossible, to obtain a car loan while unemployed. When you’re unemployed, finding a car loan requires effort and investigation. When you don’t have any proof of employment, expect to pay a bigger down payment and a higher interest rate.
To have your loan approved, make sure to explain why you’re unemployed to the loan manager and show documentation of an alternative source of income.
