Car loans are a very important loan in India. The business of car loans has risen dramatically in India in response to increasing preferences for financed automobiles. Car loan providers had registered a growth rate of 18-20% last year. The market price of cars is also on the rise. India is the 5th largest market for automobiles in the World. Banks offer a wide variety of choices to car loan seekers. People avail car loans when they do not have enough funds to purchase the car of their choice.
NBFCs and banks offer car loans not only to buy new cars, but also to buy pre-owned cars. The interest rate is in the range of 9.25% to 13.75% for brand new cars and in the range of 12.50-17.50% for pre-owned cars. Car loans are hypothecated to lenders who retain the right to sell the car to recover the dues. The ownership is transferred once the payments are made. The loan amount is sanctioned based on age and income.
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1. Let’s say your credit score is good and you have a good relationship with prospective lenders. You can negotiate for a lower interest rate and customize EMIs accordingly.
2. The car loan amount sanctioned is around 4-6 times annual income. Many people don’t like compromising on family aspirations. But, there is nothing wrong in availing a car loan.
3. Car loans are offered at fixed interest rates or floating interest rates. It is ideal to go for a floating rate car loan if yearly income is expected to rise over time. With rising income, EMIs too rise. You may still buy a car even though your current income is not sufficient.
4. Don’t worry about down payment. Financing is done up to 90-95% of the market price of the car. If the market price is Rs 6 Lakh, the bank finances around Rs 5.4 Lakh (90%) and the remaining Rs 60,000 is the down payment. You don’t have the worry about high down payments.
See Also: How to choose Best Car Loan
5. Availing car loans is quite easy. Car loans are sanctioned instantly, if you meet the required eligibility criteria and produce the necessary documents.
6. Availing a car loan helps build a good credit score, if you are regular with repayments. A good credit score is of great use, if you must avail a home loan in the future.
7. There’s no collateral for car loan. The car serves as collateral.
8. Avail a car loan and buy a car to avoid waiting for cabs and spending extra money. If you’re commuting to office each day by cab, buy a car.
9. You can use the car for personal and financial commitments.
See Also: How to Apply for Car Loan?
Car loans are offered at a maximum tenure of 7-8 years. Go for shorter loan tenure if you can afford higher EMIs. The longer the car loan tenure, the lower the EMIs and vice versa. Let’s say you have availed a car loan of Rs 10 Lakh at a floating interest rate of 10.5% for tenure of 7 years. The EMI works out to be Rs 16,861 and the total interest payable is estimated to be Rs 4,16,297.
For a car loan term of 6 years, the EMI will be Rs 18,779 and the total interest is Rs 3,52,086. In case of 5 year car loan tenure, the EMI and the total interest payable are Rs 21,494 and Rs 2,89,634. If you opt for a shorter car loan tenure of 3 years, then the EMI comes to Rs 32,502 and the total interest payment is Rs 1,70,088. Choosing a shorter tenure on car loan helps save on interest, but with higher EMIs.
See Also: Why Choose Shorter Tenure on Car Loan?
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