Funding Your Four Wheeler Dreams

By Pradeep Kumar | January 22, 2016

Funding Your Four Wheeler Dreams

Buying a car in India signifies more than just the purchase of a mode of transportation, it symbolizes financial independence and coming of age. Of course, for a vast majority of Indians, the four wheeler dream needs the impetus of a good car loan to fuel the purchase of this longed for acquisition. However, did you know that traditional auto loans come in more formats than the one that is immediately obvious?

The Fundamental Difference- Secured & Unsecured

The basic distinction is between the secured car loan and the unsecured car loan. The former is a loan type where the vehicle to be purchased serves as the security/collateral that encourages the lender to fund the loan. In the case of unsecured car loans, there is no collateral/security involved. Thus, these types of loans are riskier for the lender to fund and are thereby usually a limited amount, intended for smaller commitments, and attract a higher rate of interest. When looking for a good auto loan, be absolutely sure about its secured or unsecured nature.

The Three Faces of Auto Loans in India

New Car Loan- As the name so explicitly implies, these loans are intended for the purchase of brand new cars. Here, the loan amounts are greater and a whole range of vehicles are eligible for funding. The eligibility for a new car loan include a steady income, good credit history and unquestionable ability to repay the borrowed amount. This is by far the most popular car loan product in India and features in the product portfolio of almost all banks and financial institutions across the country.

Used Car Loan- Again, the title spells out the story. These loans are procured for the purchase of second-hand or used vehicles. Naturally, used cars are more affordable and the corresponding loan amounts aren’t very large. However, lenders do impose some conditions on the type, make and age of the second-hand car that is to be purchased. In general, the car should not be older than 2-4 years, the brands are limited to a select range and proof of the vehicle’s good functioning must be provided beforehand.

Loan Against the Car- The basic idea here equates to the concept of a Secured Car Loan. The subscriber borrows the amount and utilizes the purchased vehicle as security for the loan. If the borrower fails to make his/her monthly repayments, the lender has the option to seize the vehicle and recover the money in any way he deems fit. This type of loan is best suited for people who have their four wheeler dreams but no immediate means to fund them.

Auto loans have come a long way from the early days when the options for vehicles to be purchased were limited and the Indian middle class still got around on their trusty scooters and mopeds. With the rapidly improving standard of living of a vast majority of Indians and the influx of a range of desirable and practical four wheelers in the Indian market, the need, profile and positioning of the average car loan has also ramped up considerably. Auto loans are no longer a luxury, they are the necessary precursor to an everyday facility that most of us take for granted. Happy hunting!!

Additional reading: 5 Tips to get the best interest rates on your Car Loan

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