A car loan is one effective way of getting your dream car without having to make a large down payment. This is one way of allowing you to pay what your budget can handle. Getting a car and loan is not as simple as it might seem since it goes beyond just completing an application. It is also crucial to assess the kind of car at loan, interest, eligibility, and so on.
Read more.. What Does a Pet Dog Insurance Plan Cover?
Best Bank For Car Loan In India 2023
Following are the most affordable and the cheapest car loan in India, along with their respective car loan rates and processing fees-
| Bank Name | Best Car Loan Interest Rate | Processing Fee |
| SBI Car Loan | 7.20% p.a. onwards | Starting from 0.40% of the Loan |
| Federal Bank Car Loan | 8.50% p.a. onwards | As per terms and conditions |
| Canara Bank Car Loan | 7.30% p.a. onwards | 0.25% of the loan amount, subject to a minimum of Rs.1,000 and a maximum of Rs.5,000 |
| Bank of Baroda Car Loan | 7.00% p.a. onwards | Rs.1,500 |
| Axis Bank Car Loan | 7.45% p.a. onwards | Minimum: Rs.3,500, Maximum of Rs.7,000 |
Understanding Car Loans
The car at loan is a type of monetary agreement through which you can borrow cash to buy motor transport. Repayment of the loan occurs over another period within the set-monthly installments.
Read more.. What Is Pet Insurance and How Does It Work?
Types of Car Loans
Diverse Categories of Auto Loans
Car loans represent a crucial form of financial aid sought by individuals to facilitate their dream vehicle’s acquisition. These loans are readily available through both banking institutions and Non-Banking Financial Companies (NBFCs) and encompass a broad spectrum of vehicles, spanning from luxurious sedans to compact hatchbacks. They are primarily designed to cater to the purchase of both new and used cars, obligating borrowers to reimburse the principal amount with interest over a predetermined period, commonly structured as Equated Monthly Installments (EMIs).
In India, the car loan landscape encompasses three main categories:
New Car Loan:
Tailored for those eyeing a fresh-off-the-line vehicle directly from a dealership, new car loans are widely accessible. These loans are proffered by financial institutions, such as banks, with interest rates that typically oscillate between 9% to 14% per annum. The loan tenure offers considerable flexibility, varying between 1 to 7 years. New car loans extend their reach to a broad spectrum of car makes and models available in the market.
Used Car Loan:
Ideal for those inclined towards the acquisition of pre-owned vehicles, used car loans present a viable financing avenue. Banks and NBFCs extend these loans, covering up to 80-85% of the car’s purchase price. Interest rates for used car loans generally range from 12% to 18% per annum, offering borrowers the freedom to choose loan tenures that can stretch from 1 to 5 years. These financing options are tailored for vehicles that are typically under 5 years of age and do not exceed a decade in age at the point of loan maturity.
Loan against Car:
In scenarios where individuals find themselves in urgent need of funds, they can leverage their existing vehicles to secure a loan, known as Loan against Car. This unique lending solution allows borrowers to pledge their current car as collateral in exchange for the requisite financing to acquire a new vehicle. Several banks in India offer loan against car, extending sums of up to Rs. 10 lakh or 100% of the car’s appraised value. Interest rates for these loans are generally situated between 14% and 15% per annum, with loan tenures spanning 1 to 3 years. This option proves especially valuable for individuals with less-than-ideal credit scores, permitting them to utilize their current car as collateral for accessing the much-needed funds.
By gaining a comprehensive understanding of these diverse car loan categories, individuals can make well-informed decisions that align with their specific requirements, ensuring a seamless and trouble-free path to acquiring their coveted vehicles.
New Car Loans
New car loans are tailored for purchasing brand-new vehicles. They often come with lower interest rates and more extended repayment terms. These loans are ideal for those who prefer the latest models and are willing to invest in a car’s long-term value.
Such types of loans are meant for used car seekers. They are usually lower than the interest rates on used car loan interest rates since the risk of default is low compared to new cars. Nonetheless, it provides an excellent option for budget minded consumers that require safe transport.
Interest Rates on Car Loans
Interest rates can have significant impact on total cost of your car loan. There are several determining factor which include your credit score, loan repayment period, as well as the lenders policy.
Car Loan Interest Rate Comparison for All Banks
| Name of the Bank | Interest Rate (p.a.) |
| State Bank of India | 8.65% p.a. onwards |
| Indian Overseas Bank | 8.85% p.a. onwards |
| Jammu Kashmir Bank |
|
| Canara Bank | 8.80% p.a. onwards |
| HDFC Bank | 8.85% p.a. onwards (Rack Interest) |
| Karur Vysya Bank | 9.35% p.a. onwards |
| South Indian Bank | 8.75% p.a. onwards |
| IDBI Bank |
|
| Yes Bank | Contact the bank |
| Karnataka Bank | 9.27% p.a. onwards |
| Federal Bank of India | 8.85%Â p.a. onwards |
| Tamilnad Mercantile Bank | 10.70% p.a. onwards |
| Punjab National Bank | 8.75% p.a. onwards |
| Union Bank of India | 8.85% p.a. onwards |
Factors Affecting Interest Rates
The interest rate that you get will also be dependent on factors such as your credit history, loan term, and how the economy is fairing. In order to receive a cheaper interest rate, you must have a high credit score while also selecting a short loan period.
Receiving Car Loan
Preparing Your Finances
Shopping for Lenders
Research and compare lenders to find the one that offers the most favorable terms. Don’t hesitate to negotiate and ask for competitive rates.
Applying for the Loan
When you’ve found a suitable lender, complete the application process. Be prepared to provide personal and financial information.
Meeting Eligibility Requirements
Lenders have specific eligibility criteria. Ensure you meet these requirements, which typically include a minimum age, income threshold, and credit score.
Documentation Needed for a Car Loan
To process your car loan application, you’ll need to provide certain documents. These may include proof of identity, income verification, and residence details.
Salaried Individuals
1. Any of the following documents as identity & Address Proof
- Valid Passport
- Permanent Driving license [recent, legible, laminate]
- Voters ID Card
- Job card issued by NREGA
- Letter issued by the National Population Register containing details of name & address
- Aadhar Card(only if Submitted voluntarily & backed by Aadhar consent Letter.1st 8 digits of Aadhar Number on physical copy to be redacted)Aadhar Card can be Physical Aadhar or Print out of e- Aadhar (not older than 30 days from the date of application).
2. Latest salary slip and Form 16 as income proof
3. Bank statement of the previous 6 months
Self Employed Individuals
(Sole Proprietorship)
1. Any of the following documents as identity & Address Proof:
- Valid Passport
- Permanent Driving license [recent, legible, laminate]
- Voters ID Card
- Job card issued by NREGA
- Letter issued by the National Population Register containing details of name & address​​​​​​​
2. Latest Income Tax Returns (ITR) as income proof
3. Bank statement of the previous 6 months
Self Employed Individuals
(Partnership Firms)
1. All the following documents as income proof:
-
Audited Balance Sheet
-
Profit & Loss Account of the previous 2 years
-
Company ITR for the previous 2 years
2. Any of the following documents as address proof:
-
Telephone Bill
-
Electricity Bill
-
Shop & Establishment Act Certificate
-
SSI Registered Certificate
-
Sales Tax Certificate
​​​​​​​
3. Bank statement of the previous 6 months​​​​​​​​​​​​​​​​​​​​​
Self Employed Individuals
(Private Limited Companies)
1. All the following documents as income proof:
-
Audited Balance Sheet
-
Profit & Loss Account of the previous 2 years
-
Company ITR for the previous 2 years
2. Any of the following documents as address proof:​​​​​​​
-
Telephone Bill
-
Electricity Bill
-
Shop & Establishment Act Certificate
-
SSI Registered Certificate
-
Sales Tax Certificate
​​​​​​​
3. Bank statement of the previous 6 months
Self Employed Individuals
(Public Limited Companies)
1. All the following documents as income proof:
-
Audited Balance Sheet
-
Profit & Loss Account of the previous 2 years
2. Any of the following documents as address proof:
-
Telephone Bill
-
Electricity Bill
-
Shop & Establishment Act Certificate
-
SSI Registered Certificate
-
Sales Tax Certificate
​​​​​​​
3. Bank statement of the previous 6 months
The Importance of Credit Score
Your credit score is a significant factor influencing your car loan approval and interest rate. Maintain a good credit score to access better loan terms.
Tips to Secure a Car Loan
To increase your chances of securing a car loan:
- Save for a down payment to reduce the loan amount.
- Review your credit report and correct any errors.
- Consider getting pre-approved for a loan.
- Choose a loan term that aligns with your budget.
Negotiating the Best Deal
You must negotiate with respect to the terms of your car loan. Prepared to talk about the interest rate, length of loan and any other costs involved.
Loan Approval and Disbursement
When the loan gets approval, the lender shall channel the money that you use to buy a car. Make sure you know what your are getting into by understanding the terms and conditions before signing off on the agreement.
Paying Off Your Car Loan
Paying back a car loan in time builds trust and helps keep your finances healthy. Ensure that you create a budget and make consistent payments so as not to get charged hefty fines due to defaults.
Loan Refinancing Options
If you are looking to pay off lesser cash monthly or getting a low-rate loan, think of car loan refinancing. As a result, it might be a big help that would cost money in the end. By following the steps outlined in this guide, you can navigate the process effectively and secure the best possible terms for your car loan.
Frequently Asked Questions (FAQs)
Is it better to buy a new or used car with a loan?
If you are planning to take a car loan to buy a car, there is a slight chance that you are confused about whether you should take a new car loan or used car loan. A new car loan will enable you to buy a brand-new car while a used car loan can be used to buy a pre-owned car. Many top lenders in the country offer car loans for buying new cars as well as second-hand cars. Both these types of loans come with their benefits which we shall discuss in the below sections.
How can I improve my credit score for a better car loan rate?
Answer
Step 1: Know your credit score: To improve your credit score for a car loan, you must first know your score. You can request yours online via the CIBIL website. Your score will be accompanied by a credit information report, which is a compilation of your credit history.
Step 2: Check credit history: Read through credit information report carefully. Look for errors. For example, you may have paid off a loan, but it shows as open in the report, or it may mention a loan that you never applied for.
Step 3: Report error: If there’s an error, CIBIL has a process for you to rectify it.
Step 4: Practice prudence: If there’s no error, and your CIBIL score is low, then you need to improve your credit-worthiness.
- If you have defaulted on any payment or loan, settle that first
- Make sure you are not behind on any of your loan repayments or credit card bills
- Don’t apply for too many loans at the same time
- Use your credit card prudently – avoid maxing out your card limit every month
With discipline, you can improve your credit score for a car loan over time. And you may, one day soon, find yourself in the driver’s seat.
What is the typical loan term for a car loan?
Car loan terms typically range from 36 to 72 months, but they can vary based on the lender and your preferences.
Can I pay off my car loan early without penalties?
Many car loans allow for early repayment without penalties, but it’s important to confirm this with your lender.
Is it possible to refinance a car loan after taking it out?
Yes, car loan refinancing is possible and can help you secure better terms or lower monthly payments.
