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    Car Loan

    Car Loan

    In India, apart from the concern of disrupting one’s financial plans by paying a significant amount of money, making large purchases with cash can also attract attention

    A car loan is a financial tool that allows individuals to purchase a car by borrowing money from a lender. It provides the flexibility to pay for the vehicle over time instead of making a lump sum payment upfront. Car loans typically involve borrowing a certain amount from the lender, which is then repaid in regular installments over a fixed period, known as the loan term. The loan amount, interest rate, and loan term are determined based on factors such as the borrower’s creditworthiness, the price of the car, and the down payment made. It is important to compare different loan offers to secure the most favorable terms and ensure that the monthly payments fit within your budget.

    Car Loan Benefits

    In India, apart from the concern of disrupting one’s financial plans by paying a significant amount of money, making large purchases with cash can also attract attention from the Income Tax office. However, opting for a car loan to finance your vehicle allows you to preserve your investment funds for other present and future expenses.

    One of the major advantages of car loans in India is that they are secured by the car itself, eliminating the need to pledge your property or other assets as collateral to obtain the loan.

    Additionally, you have the opportunity to continue using your car while you are repaying the loan, which means that a few years down the line, you will have contributed to your initial savings and will have the chance to fully own the car once the loan is paid off. This allows you to benefit from the usage of the car while gradually building your savings towards ownership.

    Features of a Car Loan

    You all can enjoy interest rates as low as 7.25% per annum and repayment tenure of up to 7 years. You will be able to get your dream car. You’ll be able to get funding from 80 percent to 100 percent of the on-road price of the car.

    • The Interest Rate will be 7.25% p.a. onwards.
    • The processing fee starts from 0.50% of the loan amount.
    • Loan Tenure from 1 year up to 7 years.
    • Pre-closure Charges vary from bank to bank.
    • Guarantor requirement varies from bank to bank.

    Car Loan Service/Interest Rate

    Rate of Interest
    Processing Fee
    HDFC Bank
    7.25 – 7.65% onwards
    0.5% of the loan amount
    Axis Bank Car Loan
    9.05% p.a. onwards
    Minimum of Rs.3,500 and maximum up to Rs.5,500
    Indian Bank Car Loan
    8.45% p.a. onwards
    0.230% of the loan amount (Maximum of Rs.10,236)
    Private Car Loan
    8.70% p.a. onwards
    Min Rs. 2,500 and Max Rs. 5,000
    Canara Bank Car Loan
    7.70% p.a. onwards
    0.25% of the loan amount, subject to a minimum of Rs.1,000 up to Rs.5,000
    Union Bank of India Car Loan
    7.80% p.a. onwards
    0.25% to 0.50% of the loan amount
    Federal Bank Car Loan
    8.90% p.a. onwards

    Eligibility Criteria and Documents Required

    Documents required for the car loan and other eligibility are discussed below.

    Car loan eligibility criteria are different for different banks. The standard criteria are as follows:

    • Age: The age of the applicant needs to be between 21 years and 65 years.
    • Net Monthly Income: The minimum monthly earning of the applicant should be Rs. 25,000.
    • Employment Status: At least one year of employment with the same employer.
    • Type of Employment: Applicant should be salaried (working for a government institution or a private company) or Self-Employed for at least three years.
    • Car’s Value: If the car being bought is new, the loan amount ranges between 85% and 90% of the on-road market price of the car. For a used car, this price is up to 80% of the car’s current market value.
    • Credit History: A good credit history can make it much easier to obtain a car loan. A CIBIL Score of 750 or higher will expedite the disbursement of your dream car loan.
    Identity ProofResidence ProofIncome Proofs
    Driving LicenseCopy of Electricity Bill/Water Bill/Telephone BillSalary Slips for the last three months
    PAN/ AadhaarCopy of valid Passport/Aadhar Card/Driving LicenseCopy of Form 16 or Income Tax Returns for the last two years
    Voter ID
    Copy of Voter ID card
    Bank account statements of the last 6 months
    Valid Passport 
    If self-employed, submit P&L account, Balance sheet

    Things to Remember While Availing a Car Loan

    Step by Step ProcessAction RequiredConclusion
    Applying for Car LoanMake comparisons between the choices availableFinding deals that are best suited to your requirements
    Submitting the Proof of IncomeSalary Slip of the past 3 months +
    Account Statement of earlier 6 months IT- Returns (last 2 years)
    Ensuring your repaying capacity
    Submitting Proof Of Identity and AddressKYC Documents ( Aadhaar Card, Voter Card, Ration Card, PAN Card, etc.)Ensuring your Indian Citizenship
    Credit RecordPAN CardThe bank checks credit history to make sure you’re not a ‘risky borrower.’
    Vehicle detailsSales Receipt of the car purchased from the showroomConfirming the price of the car
    Car Insurance Proof and DLAttach a copy of car insurance and Driving LicenseEstablishing the legal requirements are fulfilled or not

    How to Calculate your Car Loan EMI?

    The Equated Monthly Installments (EMI) that you will pay depends on some key factors. These are:

    • The amount of the loan
    • The car loan rate of interest that applies
    • The period of the loan
    • The processing fees (if any)

    The higher the amount of your loan, the higher will be the amount of your EMI. EMI amount is also inversely proportional to the loan tenure. To find the best offers between an affordable and low-interest EMI and duration, you should check our car loan EMI calculator.

    Car Loan EMI Payment Methods

    Your car loan can be paid off in one of three ways.

    • Standing Instruction (SI): Standing Instruction is the best mode of repayment if you already have an account with the lender. Your EMI will be deducted automatically from the lender’s account you stipulate at the end of the monthly cycle.
    • Electronic Clearing Service (ECS): Use this mode if you have a car loan but do not have an account and would like your EMIs to be debited automatically from this account after the monthly cycle.
    • Post-Dated Cheques (PDCs): Post-dated EMI cheques from your bank account can be submitted to your nearest Banks Loan Centre. A new set of PDCs must be submitted as soon as possible. Please keep in mind that Post-Dated Cheques will only be accepted at non-ECS locations.

    It is recommended that you use either the SI or ECS mode of payment because they are faster and less prone to error than PDCs.

    Car Loan – Checklist to Follow While Applying for it

    Most people want to drive their own vehicle, but they have the financial means to do so all at once. Car loans fill in the gaps by encouraging you to buy your dream car by only paying a fraction of its expense in EMIs per month. If you’re looking for a car loan, keep these seven things in mind to get a decent offer.

    Interest rates on car loans start at 7.25% a year and go up from there, based on the car model, repayment capability, company, and other factors. Since many banks offer discounted car loan interest rates to their regular borrowers, check with the current bank first for those discounts and then equate them to the rates provided by other lenders on online lending marketplaces. Until making a final decision, make sure to check out the deals provided by dealer financing firms or captive vehicle finance companies.

    • The shorter the loan term, the better
      The majority of lenders have auto loans on terms of up to seven years. If you can, use a shorter term to save money on interest. However, since a shorter loan term means higher EMIs, make sure your loan term does not deplete your total liquidity or commitments to multiple life goals.
    • The lower the loan sum, the better
      While certain loans can fund up to 100% of the expense of your car, choose a smaller loan balance to save money on interest. However, do not use your emergency fund or redeem your long-term savings by doing so since this may have a negative effect on your financial wellbeing in the future. Plan ahead of time to invest and raise enough funds to make a substantial down payment and reduce the loan’s pressure.
    • Choosing the Right Car Loan
      Purchasing a vehicle is a significant decision. There are various considerations to consider when choosing the best style, model, and functionality. Fresh car loans, used car loans, and loans against cars are the three categories of car loans that banks often sell. You’ve decided on a vehicle and calculated the budget. Make sure, though, that the budget covers annual operating costs. The rate of interest is the next factor to remember before taking out a car loan. Borrowers who already have a contract with a bank usually get loans at lower interest rates. Any banks sell loans with interest rates as low as 8%–9.5% a year. The bank would fund up to 80% of the cost of the vehicle.
    • Examine the financial opportunities
      This takes us to the various financing solutions available. You may get funding based on either the ex-showroom or the on-road price (this includes showroom price and the registration fee and accessories). You can also choose the kind of loan you want. Either a fixed interest rate loan or a low-interest loan, which is ideal if you’re on a tight budget.
    • Inquire about costs and payments
      Keep an eye out for processing costs since different lenders charge different fees, so comparing different loan choices will help you make a more educated decision. Loan transaction fees, documentation fees, credit report fees, registration card collection fees, stamp duty, late payment fees, amortization plan fees, loan termination fees, exchange costs, bounce charges, and so forth are some of the most frequent charges and fees imposed on customers. Before picking a lender, compare the extra fees and costs of different banks.
    • Inquire for prepayment
      Another crucial thing any borrower can ask their lender is what the prepayment penalties are. When a creditor needs to pay off his loans before the term expires, several banks charge prepayment fees, foreclosure fees, and other fees. In such situations, you can always pick a bank that costs you the least amount of money.

    Foreclosing a Car Loan

    Banks in India offer car loans for new cars as well as used cars. Consumers who can’t afford to purchase their dream car with their savings can apply for a car loan. Any salaried employee or self-employed individual with a steady income and stable occupation can apply for a car loan from the banks.

    An applicant with a good credit score has higher chances of car loan approval than one with a bad or low credit score. Banks consider the creditworthiness of the applicant when processing a car loan application. 750 or above is considered a good credit score.

    Equated Monthly Instalments for Car Loan Repayment: While getting a car loan to buy your dream car is easy, there are a few things to bear in mind when doing so. Loan redemption is one of the most significant considerations. Equated Monthly Instalments are used to repay the car loan (EMI). As a result, when applying for a car loan, you can prepare your loan repayment timeline.

    Loan Approval – Steps you should follow to Get the Loan Approved Faster

    When you want to receive money to purchase a new or used car that you have decided to buy, it is better that you choose a pre-approved loan. To avail of such a car loan, you can simply follow a few steps to receive the required amount quickly.

    • Check Your Credit Report: You can always check your CIBIL score report to verify your position in terms of credit score. A credit score of 750 or more can get you a low-interest rate for a car loan. The interest rate for a credit score of 650 to 750 will be slightly higher. If you have defaulted in your CIBIL score report or have a poor credit score, your loan application may be rejected by the lenders.
    • Pay Your Bills on Time: Availing a car loan to buy your dream car, you should have a fixed minimum monthly pre-tax income and a manageable DTI (debt-to-income ratio). While it is not possible to change one’s income in most cases, you can improve your DTI by clearing off all your due credit card bills or outstanding dues. To create a good credit profile, you should always pay your outstanding bills on time.
    • Look out for Car Loan Options: There are multiple options available in the market through which you can get a car loan to purchase your new or used car. You should check the best car loan interest rates of different car financing firms and banks to find the one that compliments your needs.
    • Borrow Minimum Funds: By paying a more significant amount upfront as the down payment for the car, you can reduce the amount that you will need to borrow to match the price of the vehicle you have selected. If you borrow less amount of funds, you will be in a position to repay your loan quickly or as early as possible since a smaller loan amount means lower EMIs.
    • Make Sure to Select a Plan That Fits Your Pocket: The repayment capabilities of an applicant significantly affect the approval of a loan that the applicant has applied for. As you decide to get a car loan to buy the car that you want, you should make sure that you choose the best Plan/ Scheme that you can afford.
    • Pay Attention to the Terms and Conditions of the Loan: A loan with low monthly Instalments but consists of a longer tenure might not be feasible for you. Before you finalize your Loan scheme, you should always try to opt for the best program with the lowest interest rate and the shortest tenure for the loan possible.
    • Get Insurance with Complete Coverage: When offering a car loan, the main point of concern of NBFCs and banks is not to incur any losses or default. Therefore, having full-cover insurance is a requirement for many organizations before sanctioning a loan. It helps recover the balance debt in case of an accident wherein the borrower is at fault or cannot pay it back.

    Selecting the Right Car Loan

    The following table explains the do’s and don’ts when choosing the right car loan:

    Comparing the rates and offers can help you compare the various car loan options available to you.Eligibility – Do not apply for a loan amount that exceeds your eligibility, as this will result in your loan application being rejected.
    What’s the Interest? – Chose a loan that offers you the best interest rate along with the loan amount you need.Multiple Applications – Do not apply with multiple banks, as this will have a negative impact on your credit score.
    Keep it Simple – Chose the car before applying for the loan, and make sure the cost of the car fits your budget.If your application is rejected, don’t continue to keep apply at different banks. Chances of rejection will rise.
    Hidden Fees and Charges – What appears to be obvious may contain a hidden component. Be aware of any hidden fees or charges associated with the car loan.Taking out loans from the dealership – The loan offered by the dealer may not have the best interest rate. So, look into the other options.
    Special offers – There could be special offers available when you are applying for your loan. Make sure you take advantage of them.Don’t pick a car with a high service cost because you already have the EMI and the insurance premiums to pay.

    FAQs About Car Loan

    ✅ What sum would I get as the car loan?

    Ans. The funding sum contrasts from one bank to the next and relies upon different conditions, including the qualities of your car and loan necessities. Be that as it may, the base loan sum will be equivalent to Rs.1 00,000 much of the time.

    ✅ What happens if I wish to pre-pay the whole loan sum?

    Yes, you can choose to prepay your outstanding loan amount before the completion of your loan tenure. Fixed-rate home loans mainly attract a penalty up to 2% of the loan amount.

    ✅ Is the car loan interest rate negotiable?

    Ans. Much of the time, the car loan interest rate is negotiable depending on your FICO rating, record and past relationship with the money lenders.

    ✅ What car are loan reimbursement tenures usually there?

    Ans. Ordinarily, all banks offer reimbursement tenures from a year to 7 years, relying on the loan sum and client’s reimbursement capacities.

    ✅ Is a guarantor obligatory for another car loan?

    Ans. No, for the most part, a guarantor is required just on the off chance that you can’t meet at least one of the qualification measures indicated by the lender.

    ✅ Do I need a guarantor while applying for a car loan?

    Ans. Most banks don’t request a guarantor if there should be an occurrence of both new and trade-in vehicle loans, yet if your salary doesn’t meet the set qualification models, the bank may expect you to include your parent or life partner as a co-candidate

    ✅ Which cars are financed via car loan establishments in India?

    Ans. All little to medium-sized cars, Sports Utility Vehicles (SUV), and Multi Utility Vehicles (MUV) go under the car loans funds accessible in India. There might be special cases, enquire about the equivalent at the hour of the car loan application or allude to the loan manual.

    ✅ Would I be able to acquire an extra loan on my second-hand car loan?

    Ans. Various banks offer renegotiating choices or getting an extra loan over a second-hand car loan. The estimation of the car can be recovered into money to meet your prompt fiscal prerequisites. In a perfect world, 80%-85% of the car’s valuation sum be availed.

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