What is Car Loan?
A Car Loan is a type of Personal Loan, in this, a Financier provides the borrower with the funds to purchase a vehicle for personal use. This is a secured loan, it is secured against the vehicle, and at the end of the contract, the consumer retains the full title of the vehicle.
Car Loan is a simple and easy way to get fund for buying your dream car. Purchasing a car requires a huge finance in a single stroke and Car Loan is a financial helpline offered by Banks.
Before applying for a Car Loan you must know the features of Car Loan:
- You can get up to 100% funding for purchasing a new car.
- And, up to 85% funding for the used car.
- You can get the maximum loan amount up to 3 times of your annual salary if you are a salaried person.
- In case you are self-employed professionals you can get the maximum loan amount up to 6 times of your annual income.
- The tenure of the loan is usually between 1 to 7 years.
- On Car Loan interest is calculated on the basis of compound interest.
- You can repay your loan amount with the help of Equated Monthly Installment (EMI).
- Early settlement of the pending amount will be penalized.
- Car Loan can get approved within a day or even on the same day of application.
- In addition to above features, lenders also facilitate the Car Loan to the individuals having bad credit.
Car Loan Eligibility & Documents Required for a New car:
Classification of Client
For a car loan customers are classified as Salaried Individuals, Self-Employed Individuals or Non-Individuals.
To qualify for a Car Loan following criteria are important
- If you are a salaried must have a minimum annual income of Rs. 2.5 lakh per annum.
- In case you are self-employed then your minimum annual income must be Rs. 2 lakh per annum.
- Minimum Age should be 18 years and maximum age 75 years.
- Car Loan eligibility depends on various factors, it may vary bank to bank.
Documentation Requirement for Salaried and Self-Employed Individuals:
- PAN Card
- Address Proof
- Signature Verification Proof
- One Photograph
- ITR/Salary Slip/Form 16
- Bank Statement of Last 3 months
Documentation Requirement for Non-Individuals:
Non-Individuals are required to submit the following documents along with their Loan application.
- Certificate of Incorporation for Private and Public Ltd. companies.
- Registered Partnership Deed for Partnership Firms.
- Certificate of Commencement of Business for Public Ltd. Companies.
- Memorandum and Articles of Association in the case of Public and Private Ltd. Companies.
- Address proof & PAN Card of the Firm.
- One Photograph of Director / Partner.
- Audited Balance Sheet and Profit and Loss Account Bank.
Certain Important things you should take care when taking a Car Loan:
You should be aware of following things when you are planning to take a car loan
- Ensure EMI Fits in your Monthly Budget
Buying a dream car is a very exciting moment; however, you must consider the affordability of the EMI before you go for a car loan. You may have other EMIs as well.
- Try to Borrow as Low as Possible
If you borrow more you will have to pay more interest and resultantly your EMI will increase and which may affect your monthly budget as well.
- Processing Fee – Lesser the Better
A processing fee is a fee where you can negotiate with a bank. It depends on the size of the loan. Generally, Processing Fee varies between Rs. 2, 000 to Rs. 5, 000; it may seem to you a small amount. Sometimes during festive seasons banks waive off the processing charges, so you can take the advantage of such offers.
- Keep the Short a term as possible
A car is a depreciating asset. Which means the value of a car goes down as it gets older. So it is advisable that you should wound up your loan as early as possible.
The process to get Car Loan:
You can easily get Car Loan from any of the Government or Private Sector Bank or any Financial Institute. Now Money Dial will take an example to explain the process of getting Car Loan. Let’s take the example of taking Car Loan from ICICI Bank
- Apply online
- Write to us using the “Email Us” option
- Call us at our 24-hour Customer Care
- You can just walk into any of our branches.
- Contact any of our direct sales agents
Lending Rates for Car Loan:
Generally, interest rates vary bank to bank and generally it depends on the Car Model and tenure of the Loan.
For example, ICICI Bank offers car loan with fixed interest rate. In fixed interest rate, the interest rate on the car loan will remain fixed during the tenure of the loan.
For New Car: the Interest rate is based on factors such as customer relationship, car segment, and tenure of the loan etc.
For Used Car: for used car interest rate is based on age and segment of the car, the tenure of loan and product variant like top up, refinance etc.
For new car lending rates for up to 23 months to 84 months varies between 12.75% to 10.75%. As the tenure increases lending rate decreases.
And for used car loan tenure is 24 to 35 months and lending rate would be approximately 15% to 16%.
SBI offers two types of car loan:
- Interest rate 9.25 %( Floating); Processing Fee range 0.50%; For Loan Tenure 7 Years.
- Special Offer for Women: Interest rate 9.20 %( Floating); Processing Fee range 0.50%; For Loan Tenure 7 Years.
Tax Benefit on Car Loan:
In case you are self-employed or entrepreneur and declaring your income under the head profits or gains from business or profession then you can get the tax benefit on the interest on the car loan. However, in case you are a salaried person then you would not get any deduction on this account.
Watch the video on the car loan: