Owning a car is the most sought-after wish for the young working Indian population across the country. Keeping this motive in mind, most of the leading banks and non-banking finance companies have various car loan types on the table to offer with attractive interest rates and repayment options. The terms are reasonably suitable, making four-wheeler loans one of the most prominent consumer loans in the country.
Different Types of Loans for a Car
Understanding the various types of auto loans is where you start to make your dream of owning a car come true. Whether you’re a first-time buyer or looking to upgrade your wheels, delving into the different types of loans available can empower you with the knowledge to make informed decisions.
New Car Loan
When you are interested in buying a brand-new car and are looking for financing options, a new car loan is one way to go. While some banks provide finance on the on-road price, including the registration fee, insurance, warranty, service package, cost of accessories and maintenance costs, others consider ex-showroom costs. In a few cases, banks may finance up to 80% of the total cost, with the remaining amount contributed as a down payment.
Interest rates vary from bank to bank and, to a great extent, also depend on the segment/type of vehicle. The tenure of the loan may vary from 1 to 7 years.
Second-Hand Car Loan
In certain cases, buying a brand-new car may be out of your budget. This is where opting for a used car may serve as a more viable option. AU Bank sometimes finances as much as 90% of the price of the vehicle.
The quantum of the loan and the interest rate also depend on certain conditions like the age of the car at the time of loan maturity, brand/model and insurance validity. The maximum loan tenure maybe 4–5 years.
Loans Against Car
This option is not a car loan, per se, but more of a way to get a loan by using your car as collateral. It is an efficient way to raise funds, especially when you don’t have any other assets or are not willing to use them as collateral. The loan amount depends on the market value of the car and can be up to 90% depending on the individual’s credentials. Once again, this amount varies from bank to bank. Another aspect of a loan against the car is a top-up loan, that is, availing additional loans on top of the existing car loan.
The tenure of the loan can be up to 7 years; however, some banks prefer restricting the loan repayment period to 4 years. Since it is a secured loan, its interest rates are more likely to be less than the rates you get with a personal loan.
Eligibility Criteria for Car Loans
Sanctioning a car loan is solely up to the bank’s discretion. However, a few factors that they do consider include the following:
Age: The individual applying for the car loan should be aged between 21 years and 65 years.
Employment Type: The individual should either be an employee of a government/private company/established institution, a self-employed professional/businessman or be engaged in agricultural/related activities.
Income Requirement: The minimum yearly income requirement varies from bank to bank, but as a rule of thumb, it should be at least Rs. 2.50 lakhs. Some banks may ask for higher income (turnover, in the case of self-employed professionals). In many cases, the income of the co-applicant can be combined.
Credit Score/Credit History: Banks will also look at the creditworthiness of the applicant. A good credit score will most definitely increase your chances of getting a car loan.
When applying for a car loan, be sure to go through all the important terms and conditions. Make note of foreclosure/prepayment terms and ensure that all of your documents are in place to ensure a smooth application. In case of any queries, do not hesitate to get in touch with the bank’s customer service executives.
Conclusion
Different types of car loans offer an opportunity to consumers who want to purchase a car of their choice but don’t have sufficient funds to do so. When choosing a car loan offer, choose one with the lowest interest rate, a suitable loan tenure, zero processing fee and flexible repayment options. Tata Capital Car loans are available for the purchase of most makes and models of cars in the passenger and commercial vehicle segments, covering sports utility vehicles (SUVs) and multi-utility vehicles (MUVs) within new and second-hand space. You can also get tax deductions on car loans for commercial vehicles.
FAQs -H2
Q1. What are the different types of car loans?
New car loan, used car loan and loan against car.
Q2. What are the factors that affect the interest rate on a car loan?
Loan tenure, credit profile/history, age of the car in case of second-hand cars, insurance validity, etc.
Q3. What are the documents required to apply for a car loan?
A general list of common documents that are typically requested when applying for a car loan includes an application form, identity and address proof (passport, Aadhaar, PAN card, etc.), income proof (salary slips, income tax retunes, etc.) and car quotation.
Q4. What are the benefits of getting a car loan?
One can own a car without having the entire capital required, get a tax deduction of interest cost for cars having use in business or profession and save funds for investing in instruments which may yield returns better than the car interest cost.
30 April 2024
5 mins read
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