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Nowadays, auto markets offer attractive incentives to people for purchasing a vehicle. Be it a small car or a luxury one. There are, however, terms and conditions associated with these incentives. Let us first understand in detail what checks you need to pass for car finance in India. 

Eligibility for vehicle finance

Similar to home loans, you can find a variety of car financing options today. Every lender has a different interest rate and repayment terms. However, when granting a loan, some parameters are commonly considered by financing companies:

Personal verification

Almost all financing companies conduct the checks as part of their due diligence process. This is to verify the identity of the person applying for the loan. This includes submission of proof of identity and proof of address.

  • Identity proof that includes your name, date of birth, marital status, and residential status, PAN, passport, Aadhaar card, or voter ID is required. 
  • Address proof, utility bills or bank statements are required. 

Credit history

Credit scores reflect your financial stability and determine if you will be able to repay the loan without defaulting. The approval of funds depends largely on this assessment. It also determines the interest rates for which you will be eligible. 

Lenders will either use their independent systems or enlist the help of other credit agencies to verify your financial standing. 

Driver’s License

An applicant for a car loan must have a valid driver’s license. In other words, you should be legally allowed to drive. 

The financier can confirm from the transport department if you have lost your license or hold a provisional driver’s license or if by chance your license stands cancelled. Through this verification, the lender can know if you are a responsible driver or owner of the vehicle. 

Income proof

Finance companies look at an applicant’s income statement and employment history to ensure they will not default during repayment.

If an applicant is a salaried individual, they will request a copy of their most recent salary slip, Form 16, and a letter of employment. 

In the case of self-employed individuals, they will ask for recent bank statements, a balance sheet, a profit and loss account, and a relevant government certificate for starting the business.

How to choose a lender to finance a vehicle?

Almost every bank in the country offers car loans today. So when you as a borrower look for a financial institution to finance your car, then you should not only check interest rates but also other fees and charges. These expenses could add up to your total cost outgo. 

For instance, earlier this month, SBI, on the occasion of India’s 75th independence anniversary, waived all processing fees and provided other benefits to its car loan customers. 

Your choice

To gain an advantage over their competitors, companies are now offering instant car loan facilities in a digital form. Leading financial institutions including ICICI Bank offer their pre-approved customers an instant online car loan facility with a 7-year tenure. All of these incentives seem appealing. However, it is important to look at the total cost of ownership before committing. Costs including down payment, interest charges, insurance premiums, and taxes will also be part of the cost of the vehicle if you take a car loan. Hence, always study interest rates, repayment schedules, fees, the lender’s credibility, and other costs in advance. 

A few questions while pursuing a car loan

  • How do I find out if I am eligible for a car loan?
  • Is there a minimum salary requirement for a car loan? How much car loan can I get on a salary of Rs 20,000 per month?
  • What do car finance companies check? 

Let’s answer these with an example. Suppose you want an SBI car loan. The following is the income criteria to check car loan eligibility SBI:

Applicant Minimum Income requirement Maximum Eligible loan amount
Salaried individuals The net annual income of an applicant and co-applicant, if any, must be a minimum of Rs. 3,00,000. 48 times of net monthly income
Self-employed A minimum of Rs. 4,00,000 p.a. net profit or gross taxable income 4 times of net profit or gross taxable income after adding depreciation and repayment of existing loans, if any
Engaged in agricultural or allied activities A minimum of Rs. 4,00,000 net annual income of applicant and co-applicant, if any 3 times of net annual income

Let’s understand about what are the documents required for a car loan in SBI.

2 photographs of the applicant

The documents required for a car loan for a salaried person include:

  • Recent Form 16 and 2 salary slips
  • The latest bank statements (for the last 6 months)
  • Ration card or utility bills or Aadhaar card for address proof
  • PAN, passport, driver’s license, or birth certificate for age proof
  • A copy of the appointment letter or the relieving letter

The documents required for a car loan for self-employed include:

  • The latest ITRs for the last 2 years 
  • The latest bank statements (for the last 6 months)
  • PAN, passport, driver’s license, or Aadhaar card
  • Utility bills or Aadhar card for address proof
  • Certificate of Shop & Establishment Act, Sales Tax certificate, or the Certificate of registration as SSI or MSME

For individuals engaged in agriculture or allied activities:

  • Proof that the government has approved the agricultural activity mentioned
  • Passport or Aadhar card for age proof
  • Utility bills, ration card, or Aadhaar card for address proof
  • The latest bank statements (for the last 6 months)
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