Essentials of your car loan!
Usually in the excitement of owning a car, people often do not give the due importance to take a closer look at car loan options like comparing offers of different banks and reading the terms and conditions. Let us take a look at some of the essential must knows before applying for a car loan.
Eligibility and Credit Score:
Car loans are available for both salaried and self employed individuals filing regular IT returns. Depending on your personal relations with the bank, one can get a car loan up to 90% of the car value. Different banks have different terms for various car models. Banks verify the personal income tax statements to decide the overall loan limit to be offered for each client. The banks do a background check of the credit history of every client including the Credit Information Bureau India Limited or CIBIL score. Users having a bad credit history or a poor CIBIL score are likely to be declined a car loan. Generally a credit score of more than 700 points is considered to be a good rating before the bank approves the car loan application.
Interest Rates:
Just like any other loan, interest rate plays a major role in deciding the installment amount one needs to pay each month for the car loan. Public sector banks have a slightly lower interest rate than private banks. Interest rates also vary depending on the duration and type of car loan opted for by the client. Borrowers can opt for a fixed interest loan or a floating type interest loan depending on the macroeconomic situation at the time of filling the car loan. Fixed rate interest rates are ideal for users who opt to play safe and feel comfortable with a fixed EMI every month. On the hand if you think interest rates are likely to fall in the near future depending on the overall economic situation, opting for a floating interest rate is a good idea. Make sure your car loan is of a reducing balance type which reduces the principal amount of the loan after each EMI paid.
| Banks | Car Loans Interest Rates | Processing Fee |
| SBI | 10.75% | 0.5% of loan Amount |
| ICICI Bank | 11.50% – 14.25% (From 36 – 60 months), |
13.75% – 15.50% (From 24 – 35 months),Rs. 3000 to Rs. 5000HDFC Bank10.75% – 12.50%Rs. 2500 to Rs.5000Axis Bank11%Rs. 3500 to Rs 5500Magna Fincorp11.25% – 12.00%-
Down Payment:
With many auto loan schemes available in the market today, finance companies offer loans up to 90% of the car’s value. In rare cases banks and other non banking finance companies offer 100% financing under special schemes in tie up with the dealership. Such schemes will be limited to few models and are seasonal.
Considering a car loan of Rs.6 lakh at an 11% rate of interest and for 5 years tenure, the monthly EMI would be Rs.13045, which means, on completion of the 60 EMIs, one would need to pay Rs. 7,82,727. The higher the amount of loan taken, the higher is the final cost of the car. It is always better to make the maximum possible down payment to avoid increasing the overall cost of ownership of the car.
Tenure:
Car loans usually have tenure from 1 to 5 years generally. Some banks with various schemes offer car loans with 7 year tenure. The longer the tenure, the lower is the EMI paid by the borrower but increases the payment of total interest. Taking the above example of Rs. 6 lakh at an 11% interest rate, you will have to pay an EMI of Rs 19,643 for 3 year tenure compared to Rs. 13,045 EMI for 5 year tenure. The total amount paid back to the bank for 3 years will be Rs. 707,156 only.
| Loan Amount | Tenure | Interest Rate | EMI | Total Interest Amount | Total Amount (Principal + Interest) |
| Rs. 6 Lakh | 3 Years | 11% | Rs. 19,643 | Rs. 107,156 | Rs. 707,156 |
| Rs. 6 Lakh | 5 Years | 11% | Rs. 13,045 | Rs. 182,727 | Rs. 782,727 |
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