Car loans are a type of credit taken from a lender for the sole purpose of purchasing a car. When you buy a car with a car loan, the lender pays the dealer upfront. The borrower then repays the lender, including the fees and interest.
The lender will register the car under your name once the entire loan amount has been repaid. In case the borrower defaults, the car will be used as collateral.
In India, there are three types of car loans:
New Car Loan - New car loans are used to purchase a brand-new car. Banks will offer anywhere between 7% to 13% per annum interest rate on a new car loan with a loan tenure of 1-7 years.
Used Car Loan - Lenders also provide loans for the purchase of used cars. The interest rates for used car loans can be anywhere from 12% to 18% per annum, and the tenure can range from 1 to 5 years.
Loan Against Car - A borrower can use their car as collateral to get a loan. This loan can, in turn, be used to buy a new car. Lenders give loans against a car at an interest rate of 14% to 15% per annum for a tenure of 1-3 years.
Applying for a car loan has become significantly easier with the internet. Most lenders have an online application process to make their loan products more accessible. Here are the steps to applying for a car loan:
Search online for lenders who give out car loans.
Visit the lender’s website.
Navigate to the Car Loans page and click on “Apply Now”.
Enter the required information and personal details.
Upload the necessary documents.
Once the online application has been completed, you will be contacted by a representative.
When you apply for a car loan, these documents will be required. Keep these documents handy while applying:
Passport
Drivers License
Voters ID
NREGA Job Card
Aadhaar Card
Income proof (Latest salary slip, Form 16, Income Tax Returns (ITR)
Bank statement of the previous 6 months
There are many factors that affect your eligibility for car loans. Here are some of the most common requirements for availing a car loan:
Must be over the age of 18 and under the age of 75.
Monthly income of more than ₹20,000.
More than one year of employment with the current employer.
Must be salaried or self-employed
Car loans can be a life changer for those who need a vehicle. Here are the benefits of taking a car loan:
Taking a car loan gives you immediate ownership of the car without paying the entire amount upfront. This can be beneficial for those who are in immediate need of a car.
A car loan can help you build a good credit score if you pay the monthly payments on time. Successfully managing a car loan shows you are able to handle a debt responsibly. This will increase your appeal to potential lenders.
Lenders offer a range of repayment terms for car loans. This allows you to select a plan that best fits your financial situation. You can choose the loan duration according to whether you prefer lower monthly payments over a longer term or higher payments over a shorter term.
With a car loan, you can afford a higher-quality car. This is because the loan allows you to spread the cost over time. You can get a car with better reliability, advanced safety features, and lower maintenance costs, which can lead to long-term savings and a better driving experience.
A car loan is a type of loan that allows you to borrow money to buy a car. By taking a car loan, the borrower agrees to repay the loan amount plus interest over a specified period.
Yes, some lenders provide 100% financing for new cars.
Car loan terms can range from 1 to 7 years. Shorter terms can mean higher monthly payments but less interest over the life of the loan, while longer terms offer lower monthly payments but higher total interest costs.
Common fees associated with car loans include origination fees, application fees, and prepayment penalties. Read the loan agreement carefully for a full understanding of any additional costs.
Yes, car loans can be used to buy used vehicles.
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