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What is a car loan?

You can avail a loan from a bank to purchase a brand new car. You have to pledge the car as collateral to avail this loan. You can also avail a loan for a pre-owned car.

What are the types of car loans?

Secured car loan: Your car is the collateral for the loan. If you do not repay your car loan, the bank can repossess and sell the car to get the money back.

Unsecured car loan: You avail an unsecured car loan to purchase a used car. You need not offer the car as security for the loan. You are sanctioned a smaller quantum of loan than a new car loan, and at a higher interest rate.

Why avail Car Loan?

Interest Rates

Banks offer you a car loan at competitive interest rates. Women customers are offered a discount on interest by most banks.

Higher Loan Margin

Banks are willing to finance 90-95% of the cost of the car. Many banks lend for the full value of the car.


Easy Documentation

You can walk into the bank branch and bank officials would willingly answer your loan queries. Documentation is fast and convenient.

Special Discounts

Banks offer attractive interest discounts for car loans availed in the festive seasons.

Eligibility criteria to avail a Car Loan

Salaried person

Age: You need to be at least 25 years of age and a maximum of 60 years at maturity of the loan.
Income: You need to have a gross annual Income of at least INR 3 Lakhs a year.
Employment stability: You need to have more than 2 years of work experience, and you should be in your current job for at least a year.

Self-employed individual

Age: You need to be at least 25 years of age and a maximum of 65 years at maturity of the loan.
Income: You need to have a gross annual Income of at least INR 2.5 Lakhs a year.
Business stability: Your business should have more than a 3 year track record of existence and profits.

Key factors to consider for Car Loan

What are the documents required to avail a car loan?

If you are salaried

You need an address proof such as a Ration card, Driving license, House Tax chalan, Housing Society bill, Voters card, Passport, Telephone bill, Electricity bill, Water bill, Landline bill and a Credit Card Statement.

You need an identity proof such as a Ration card, Passport, PAN Card, Voter Identity card, Driving license, Employee ID issued by Government of India/ PSU/ Limited companies, Local Panchayat Identity card, and a Notary certification with a Photograph.

You need the latest salary slip with the Form 16 document as an income proof.

If you are self employed

  • You need an address proof which shows the location of your firm/business.

  • You need an identity proof such as a Passport, PAN Card, Voters Identity card, Driving license, Latest Sales Tax assessment order or a Sales tax registration certificate.

  • You need the latest Income Tax Return as an income proof.


Concepts & FAQ's Car Loan

What is a Car Loan?

Car Loans have made it easier to own cars. However one can get the best deal from a car loan if one is aware of a few things.

1. Interest rate for auto loan varies depending on various factors like

  • Credit (CIBIL) score of the borrower: A bad credit history/score could mean higher interest rates

  • Amount of loan applied for: Lenders usually finance 80-100 per cent of the ex-showroom price as a loan for a new car

  • Make of the car: Different cars have different interest rates

  • Second hand cars normally carry a higher rate as compared to new cars

  • Tenure for which the loan is being applied for: Car loan has a maximum tenure of 7 years for a new car

2. Inquire if there is any Prepayment penalty : if one wants to pay for the remaining amount before the end of the tenure, there could be a prepayment penalty on it. It could range between 3-5% of the outstanding loan amount.

3. One can negotiate on the Processing fees : Processing fee is negotiable and some lenders might even agree to waive this.

Thinking of buying a Car Loan ?

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Frequently Asked Questions

How much loan can I get?

The amount of the loan depends upon:

  • The cost of the vehicle.

  • The type/model of car (standard/premium).

  • The percentage financing offered If you are buying a new car, you can get up to 90% financing but some banks have a limit beyond which they do not offer loans.

How long does it take to process the loan?

If all the required documents are in order, your process moves fast. You need to submit requisite documents like salary slip, tax returns, proof of residence, bank statements etc. The processing will take between 2 to 7 days.

Is credit profile important?

Yes, to banks, your credit profile is the most important factor as they will consider it before funding you. Your credit profile tells banks if one is able to and intends to pay back the loan.

What are the detailed components of my credit profile?

The components of credit profile are age, profession/occupation, income/financials, previous credit history etc.

Can I reduce or change my EMI?

Once you have signed the agreement with the loan provider, the EMI cannot be altered. So only after you are satisfied with the EMI agreed upon with the banks, sign the dotted lines. However you can pre-pay the loan amount in which case there will be some penalty.

Can I pay off my car loan before the tenure is up?

Yes, you can pay-off your car loan before the tenure is up by pre-paying your loan amount. But there may be certain rules regarding the pre-payment that your bank may have. Also you may have to pay a small penalty, normally, a percentage of the loan amount that remains outstanding.

Can I change the tenure and amount of loan taken after the loan amount has been disbursed?

Yes you can change the tenure and amount of the loan. But this would imply that the interest rate and the amount of installment will change accordingly.

Can I sell my car before I repay my loan?

NO. You cannot sell the car unless you repay the loan. An NOC is required from the banks before you can sell the car.

Can I get a temporary relief from paying my installments?

Yes, in some cases you can. You need to inform your bank in advance. This should only be for a few days and you will have to pay delayed payment charges.

What happens if I delay some installments?

Delaying your installments frequently may affect your credit profile and might make further borrowing not only difficult but costly too. However, in some rare circumstances, if you delay an installment, most banks would charge you a delayed payment charge, as high as 3%, compounded monthly.

Can I get finance for car-accessories?

Most banks do not finance car-accessories other than those which are factory fitted like air-conditioners. Some may however fund music-systems and other such expensive accessories.

What happens after I have paid the last EMI?

After the last payment is made, get the lien of the bank on your car cancelled. The bank will issue Form 35 with a covering letter (NOC) to the RTO for canceling their name from the R/C book. A similar NOC will also be issued to the insurance company requesting for the deletion of their name from the policy.

What happens if the car meets with an accident?

In the event of an accident, the first step is to inform the insurance company. The company then sends a surveyor to assess the extent of damages to the car. Your claim is then processed and paid directly to the banks, unless you have taken an NOC from the banks, in which case the payment will be made by the insurance company in your favor. The bank normally gives you an NOC if you are regular in your payments. In case of a complete loss, the bank would receive the payment directly from the insurance company.


Car Loan Articles

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Should You Buy Or Lease A Car?

20 June 2019, Thursday    

If you live in a metro city, then you better buy a car. If you and your family go on long drives or spend late nights at parties you definitely need a car. This brings to mind an important question, Should you buy or lease a car? What is Car Lease? Car leasing allows you to drive a car withou ....

How to Close a Car Loan?

17 June 2019, Monday    

Have you paid the last car loan EMI? Have you pre-closed the car loan? If yes, the job is not yet over. There are certain formalities to be completed before you say ‘The car is mine.’ This article outlines a few important steps to be followed, if you have made the last car loan EMI payme ....

Consequences of Not Making Car Loan Payments on Time

13 June 2019, Thursday    

Most people avail car loans from banks to buy their dream cars. Car loans have taken off in India in recent times, as disposable income rises. In 2018, car loans witnessed a growth rate of 18-20%, which is a huge increase. While taking a car loan is not too difficult with the relaxed eligibility cri ....


Car Loan News

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Mahindra-owned Pininfarina confirms EV platform

Monday, September 16, 2019, 3:03 PM

Automobili Pininfarina recently announced that it will be developing an all-electric high-performance platform which will underpin most luxury brands. The Mahindra-owned Italian company has joined hands with Bosch and Benteler to source components for the platform. The announcement was made at the ongoing Frankfurt Motor Show when it was confirmed that the three companies will jointly develop a high-performance electric vehicle platform.

M&M offers its personal vehicles range on monthly subscription

Thursday, September 12, 2019, 4:34 PM

Home-grown auto major Mahindra & Mahindra rolled out a subscription-based service for retail buyers of its personal range of vehicles to boost plummeting demand. The vehicles under the scheme, which has initially been launched for its customers in Delhi (NCR), Mumbai, Pune, Bengaluru, Hyderabad, Kolkata, Chandigarh and Ahmedabad, will be available at a subscription price starting from Rs.19,720 per month, the company said.

Link loans to benchmarks: RBI to banks

Thursday, September 5, 2019, 1:03 PM

The Reserve Bank of India (RBI) has made it mandatory for banks to link loans to retail customers and micro, small and medium enterprises (MSMEs) to external interest rate benchmarks in a big push to make transmission of monetary policy more effective. Home and car loan rates, along with those for personal travel, are expected to fall, benefitting borrowers.


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Choose a short tenure for your car loan

Friday, June 9, 2017, 5:38 AM

Most lenders offer up to 7-year tenure on their car loans. The longer the loan tenure, the higher is the interest cost. As cars are depreciating assets, it makes sense to repay your loan as fast as possible. However, shorter tenure leads to higher EMIs. So, first determine how much EMI you can pay and then fix the loan tenure accordingly.

Pay maximum down payment on your car to reduce the loan amount

Friday, June 9, 2017, 5:27 AM

Different lenders have different criteria on how much of the total car price they will finance. As a borrower, try to pay the maximum downpayment on your car out of your own pocket to bring down the loan amount. But do not use your emergency fund or long-term investments to make a higher down payment.

Take a look at processing fees before availing a car loan

Friday, June 9, 2017, 5:13 AM

Lenders charge this fee to cover the cost incurred while evaluating your loan application. This is usually a non-refundable fee, which can range anywhere from Rs.1,000 to Rs.10,000. Various lenders offer discounts or waive off processing fees, especially during festive seasons. However, make sure that the savings made on processing fees is not offset by higher interest rates or other charges.



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