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New Car Loan – Auto/Vehicle Loans in India

Team CARS24
editor
Latest News
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New Car Loan – Auto/Vehicle Loans in India

Team CARS24
editor

Once upon a time, owning a car was something that was out of reach for many. For many, it’s still one of the biggest milestones in life. This is due to the huge amounts of money needed to buy a dream car. Today, owning a car is not a Herculean task as most banks easily provide financing options for both used and new cars. One can easily pay off the borrowed money through EMIs. Here, in this post, we’ll tell you in detail about the new car loan.

Steps Required To Take A Car Loan

Below, we go on to highlight all the steps that are required to take a car loan. Our description includes some of the terms and factors you need to be aware of. The following information will not only help you understand the entire loan application process better but will even assist you with making efficient financial decisions and, therefore, plan your finances better.

  • Check Credit Score – Before you approach a bank to take a car loan, you need to check your credit score. Basically, it is a number that ranges between 300 to 850. This score is decided as per your borrowing history, and it tells the lenders how likely you’ll replay the borrowed amount on time. You can find your credit score free of cost online. This score will have a direct relation with the money you borrow from the bank and even the interest rate at which you borrow. A lower score will mean banks would be reluctant to lend you large sums. They will also charge a higher interest due to the increased risk of you defaulting the payment. The vice versa also holds true.
  • Determine the Amount You Need to Borrow – By now, you would have already decided. Next, it will be time to figure out the EMIs you’ll be easily able to afford. While banks provide up to 90% finance, it’s better to make at least a 20% downpayment. The more the down payment, the lower will be the loan burden. You’ll also need to ascertain the tenure for which you’ll need to borrow. Banks offer loans for 3 to 7 years. Larger the tenure, lesser will be the EMIs. But you’ll also end up paying more in interest. Over here, remember that cars depreciate quite quickly, and hence, it’s always good to not have a tenure of more than 60 months.  
  • Next, choose the Lender – Start looking for the lender that offers money at the lowest interest rate. Often, some credit unions provide lower interest rates than large banks. However, their services might not be as good, and the banks you already have a relationship with might offer you similarly attractive rates if you have a high credit score and a good history of repayment at the same bank. Also, some online-only banks offer loans at low-interest rates. This is due to the fact that they don’t have to bear any overhead costs. However, remember that they don’t have any physical office that you might want to visit in case of any doubts.
  • Get Pre-approved Loan – Once you’ve decided on the lender, apply for a pre-approved loan of the required amount. Even the dealerships can help you arrange financing as well as pre-approval. Still, it doesn’t hurt to research a bit and ultimately borrow from the bank that offers the lowest interest rate and no penalty on early re-payments. You can have pre-approvals from multiple lenders and take as much as 30-60 days to choose the one that appeals the most to you.

New Car Loan Finance

Until a few decades ago, conditions used to be such that owning a car was considered a luxury. Today, however, having a car is a necessity and something that increased purchasing power has easily ensured for many. One of the biggest reasons that have helped more and more people easily purchase a car is opting for a car loan.

 That said, thanks to inflation and the advent of new technologies, purchasing a car is no longer an easy task as even an entry-level small car today costs upwards of Rs 4 lakh after the inclusion of the taxes. Hence, keeping in mind the huge demand for both new and second-hand cars, most leading banks in India offer car/auto loans. Through this finance option, one can easily purchase a car and pay for it through EMIs.

Banks Providing New Car Loans in India

As you must be already aware, there are several banks in business in our country. These include everything from state-run organisations like the State Bank of India (SBI) to private banks like ICICI. These baks mostly offer car loans at different rate of interest. That said, these rates aren’t fixed and tend to vary as per your credit score. Also. most banks offer finance of up to 85% of on-road price and 100% of ex-showroom price. Also, most banks offer a loan tenure of up to 7 years but there are some that offer loans only for tenures of 3 years and 5 years.

BankCar Loan Interest RatesMaximum Loan TenureMaximum Loan Amount
HDFC Bank Car Loan Rates8.10% Fixed7 yrs100% of ex-showroom price
SBI Car Loan Rates8.00% Floating7 yrs85% of on-road price
ICICI Bank Car Loan Rates9.30% Fixed7 yrs100% of ex-showroom price
Axis Bank Car Loan Rates9.25% Fixed7 yrs100% of on-road price
IndusInd Bank Car Loan Rates10.65% Fixed5 yrs85% of ex-showroom price
Kotak Bank11.50% Fixed5 yrs90% of ex-showroom price
PNB8.75% Floating7 yrs85% of on-road price
Union Bank of India8.60% Floating7 yrs85% of on-road price
Central Bank of India9.00% Floating7 yrs90% of on-road price
Andhra Bank9.40% Fixed7 yrs85% of on-road price
IDBI Bank9.30% Fixed7 yrs90% of ex-showroom price
Federal Bank9.15% Fixed7yrs90% of ex-showroom price
Bank of India9.50% Floating7 yrs85% of on-road price
Bank of Maharashtra9.25% Floating7 yrs85% of on-road price
Corporation Bank9.55% Floating7 yrs85% of ex-showroom price
Indian Bank9.65% Floating7 yrs85% of on-road price
OBC9.05% Floating7 yrs85% of on-road price
Bank of Baroda8.90% Floating7 yrs85% of on-road price
United Bank of India9.10% Floating7 yrs85% of on-road price

Documents Required for New Car Loan/Finance

One can’t avail a car loan without submitting a set of documents to the lender. These documents often vary from one lender to another but mostly, documents that offer a well-established proof of your age, income and address are required by the lenders for successful and easy processing of the loan amount. The details of the documents required for new car loan can be found in the table we have below –

Documents IDIndividualsNon-individuals
Signed Application FormRequiredRequired
Identity ProofPAN card, Passport, Driving License, Aadhaar Card, Voter ID, Government issued i-cardPAN card, Passport, Driving License, Aadhaar Card, Voter ID, Government issued i-card
Certificate and Proof of Business ExistencePAN , sales tax/ excise/ VAT/ service tax registration, Copy of partnership deed, Trade license, certificate of practice, registration certificate issued by RBI
Address ProofPassport, Driving License, Election ID card, Electricity/ Telephone/ Mobile bill/ bank statement (not more than 3 months old)Bank statement, utility bill, Registry copy, lease or rent agreement, TAN allotment letter
Age ProofPAN card, Passport, Driving License, Voter id card, Birth certificate, Employee ID card (only for PSU/ Government employees), School/ college leaving certificatePAN card, Passport, Driving License, Voter id card, Birth certificate, Employee ID card (only for PSU/ Government employees), School/ college leaving certificate
Income ProofForm 16, last 3 months salary slip, last 3 months’ bank account statement showing salary creditLast 2 years ITR, last 3 months bank account statement
Car QuotationQuotation of cost of the car selected from the dealerQuotation of cost of the car selected from the dealer

New Car Loan Eligibility Criteria

Not everyone can get a new car loan as there is an eligibility criteria one should meet for him or her to successfully obtain a car loan. This criteria includes factors of age, income, credit score, profession and even work experience. The lenders have a set criteria to consider one eligible for a car loan as it minimises the risk of payment defaults by the borrower. In the table we have here, we’ve listed out the new car loan eligibility criteria-

Minimum and Maximum Age18 years – 65 years 
Please Note: Some banks require the borrower to have a minimum age of 23 years
Loan AmountMost banks offer a loan of up to Rs. 50 lakhs. However, some banks provide a maximum loan of up to Rs. 1 crore 
Net Monthly IncomeMinimum Rs. 18,000 per month 
Employment TypeOne needs to be either salaried, self employed or businessmen for an interest rate of up to 20.00% 
Minimum Work ExperienceSalaried: Must have at least 1 year of work experience. In case of self employed, the business existence must be of at least 5 years and an ITR of minimum of 2 years 
CIBIL ScoreCIBIL 700 & more 
Please Note – Banks prefer to lend money easily and at lower interest rates only to those who have a high credit score (CIBIL)

Tips

In order to get a car loan online at the lowest possible rate of interest, one should take care of the following do’s and don’ts –

Do’sDon’ts
Check best discount and offers – Always check current offers and car loan interest rates offered to employees of large reputed companiesDo not apply for loan amount more than what you are eligible for –Applying for an amount higher than your eligibility may lead to rejection of your loan application
Compare car loan rates based on loan amount – Some banks offer lowest interest rate car loans for high loan amountDo not apply with multiple banks – Simultaneous loan applications get recorded in your CIBIL report and can hurt your chances of getting a loan
Discount for tenures – Banks may offer lower rates on car loan for certain tenureYour salary bank may not offer the cheapest loan – Various banks keep offering attractive schemes to acquire premium customers. Hence, salary bank may not be the best option

Benefits of New Car Loan

A new car loan offers the following benefits-

  • Loan Tenure – One can choose from loan repayment tenures of 3 to 7 years, depending on his comfort level.
  • No Collateral Required- As a car loan is secured against the car purchased through it, one doesn’t need to put any other asset as mortgage to get a loan.
  • Loan Amount – The amount of loan one gets depends on the value of the car. One can get up to 100% ex-showroom price or even 80% on-road price of the vehicle as the loan amount.
  • Interest Rates: You can get car loans at both fixed and floating rate of interest. Currently, the car loan interest rate ranges between 8.10% to 9.10%.

New Car Loan Refinancing

In case you’ve been wondering, refinancing of a car means having a new car loan from a new lender replace an old one from the original lender. Refinancing a new car loan has the following benefits-

  • Reduced interest rates: Of course, one would get his car refinanced in case another bank offers a lower rate of interest than what the original lender has offered. However, it is important to note here that one needs to check that the pre-payment charges don’t exceed the overall benefit one would get from lowered interest rates.
  • Modifying the loan tenure: One can even choose to refinance a new car loan in case he wants to increase or decrease the tenure of the car loan. It must be noted here that the EMIs are inversely proportional to the loan tenure and hence, one must carefully plan the refinancing of the new car loan.
  • Other changes: One might also end up coming across better loan offers from a new lender that charges lower or no late payment fees, hypothecation, insurance and application charges.

New Car Loan Schemes

There are multiple new car loan schemes and one should choose the option that is best suited to him in terms of EMI payment. Below, have discussed the new car loan schemes that are being offered by most of the lenders out there in the market –

  • EMI in Arrears – This is the most common method of payment of EMI. In this scheme, the easy monthly payment (EMI), which includes the principal amount along with the interest calculated for the particular month, is paid during or after the end of the month.
  • Advance EMI – As per this scheme, you will need to pay the EMI at the beginning of the month itself. Therefore, every month, you end up paying the interest on a part of the total sum borrowed as soon as the month begins.
  • Zero-interest scheme – Also called zero per cent finance scheme, this actually something that is more of a marketing trick than something that is beneficial for the consumer. So, one must get cautious if someone offers zero interest. In most likelihood, the car company is simply providing a subvention scheme whereby the interest is paid by it to the bank upfront. Hence, you should ask the car dealer to offer for the same amount as a cash discount.
  • Flat rate of interest scheme – In this method, you pay interest on the entire principal amount of loan till maturity. So, on a loan of Rs. 5 lakhs at 10% for 5 years, you would have to pay back a total of Rs. 5 lakhs plus interest of Rs. 50,000 a year, that is a sum total of Rs. 7,50,000. The EMI in this case would be Rs. 12,500.
  • Reducing balance scheme – In this method, you pay interest on the amount outstanding each month. With each EMI, the balance principal amount keeps reducing. So, on a Rs. 5 lakh loan at 10% for 5 years, you would have to pay back a total of Rs. 5 lakhs plus interest on reducing basis which comes to Rs. 1,37,411 or Rs. 6,37,411 including principal. The EMI in this case would be Rs. 10,624, a good 15% less than that for a flat rate scheme.

FAQs

Q: Why do I need car loan?

A: Car loans are required to purchase a new car or used car easily by paying instalments every month instead of making a large payment at once at the time of the purchase of a vehicle.

Q: How can I apply for car loan?

A: You can apply for a car loan online or by directly visiting a bank branch or even though the sales person at the car dealership.

Q: What is the minimum and maximum tenure of car loan?

A: Car loan are generally for 36 months to 84 months.

Q: What are the charges for car loan?

A: Apart from rate of interest, there are two types of charges being charged by the banks. 
– Car loan processing fee
– Car loan preclosure fee

Q: Is CIBIL Score for car loan important?

A: Car loan CIBIL score is very important as it indicates your repayment records and hence, banks can offer you a higher loan amount easily.

Q: Do I need to open a bank account to service my car loan?

A: Yes, you need to have an account in your name to get a car loan from a bank.

Q: Can I apply for car loan jointly with my spouse?

A: Yes, you can apply for car loan jointly with a co-applicant (either be your spouse or your parents).

Q: Does it affect my co-applicant if I default in car loan?

A: Yes, in case you do not pay on time, the default will even affect the CIBIL score of your co-applicant.

Q: What are the main factors that affect interest rate of car loan?

A: Interest on car loan mostly depends upon loan tenure, down payment, credit report and your net income.

Q: Can I do balance transfer on car loan?

A: Yes, if you are getting a loan at a lower rate of interest, you can opt for car loan balance transfer

Q: Can I get top up on car loan?

A: Yes, you can get car loan top up.

Q: What should I do if my car loan application gets rejected by bank?

A: It is not out of ordinary to have your loan application rejected, especially if you are already having many loans in your name. If this is the case, the following can be done –
– One can have his spouse as the co-applicant to boost the combined earning levels and get the required loan amount.
– One can even clear the old loans so that you can get a new loan easily
– Balance transfer of your existing loans so that the rate of interest on loans can come down and the additional loan can be availed.