The days are gone when owning a car or a two-wheeler was a privilege. It has become a requirement for all to own a car of their own. First car is the dream of every individual. An auto loan made this possible.
What is an Auto Loan?
Auto Loan is a loan taken for a purchase of a vehicle. These are secured loans, meaning the vehicle being purchased is in the name of the bank until you pay in full the loan amount, or else they can repossess your vehicle on failure to make payments. This loan could include a loan for a private vehicle which is for personal use for a commercial vehicle used for business purposes.
How does an Auto Loan work?
Some banks allow you to take a loan for 100% of the vehicle value, however in most of the cases a down payment is required. It’s advisable to make a down payment more than the minimum amount required, so that you end up paying less in interest charges.
What are the interest rates for an Auto Loan in India?
Banks charge a fixed rate of interest starting at 8.89% to 11.5% as well as some banks offer a floating rate of interest starting at 8.60 to 9.65%. Depending on the tenure of 5 or 7 years your EMI amount and interest would be calculated and spread through the tenure. Even though a 7-year tenure may seem more appealing in terms of EMI amount, you would be paying more in interest, and hence its advisable to take a shorter duration like a 3 or 5-year term, if you can afford the EMI amount.
What are the eligibility criteria to apply for an Auto Loan?
Your age is the first check when it comes to being able to apply for an Auto Loan, 18 years is the minimum age and 75 years is the maximum age to be able to apply for this loan (Some banks may restrict the limits from 21 to 60 though). Then comes your area of residence, whether you reside in a city or town, how long have you been staying in that location or house. Also checked is the type of vehicle that you are purchasing, if it’s a new vehicle or a used vehicle. The tenure with your organization and your total work experience also counts. The salary you earn also increases your eligibility amount, the higher your net salary, the more you are eligible for.
What other expenses, fees or charges do I have to bear?
Apart from the actual cost of the car, you need to monitor the related expenses, such as taxes, registration fees, insurance premiums, processing fees, maintenance charges and stamp duty, etc. It is also best to verify all charges and fees in advance when applying for a loan.
What are the various documents you need to have, in order to apply for an Auto Loan?
For address proof, you would need to submit either an Aadhaar card, passport, Voters ID, driving license or a utility bill. For your age proof, Aadhaar card would suffice if already submitted, else your birth certificate or school certificate would do. If provided, Aadhaar would also be ok for identity proof, else PAN card, Voters ID card, driving license or passport would be required. You would also be required to submit proof of income, like salary slips, bank statement, form 16 of 1 to 2 years.
What is the processing time for an Auto Loan?
Assuming all your documents are in place and your application has been submitted to the bank or dealer financing your Auto Loan, it generally takes between 3 to 7 days.
Can I opt for a fixed or floating rate of interest?
Yes, you can opt for a fixed or a floating rate of interest, depending on the interest rates both offer and which one suits you better.
What happens if I do not make a timely payment of my EMI?
Banks generally send you a reminder, and allow up to a few days for you to make the payment after your due date has passed. However, if many days pass without a payment being made to the bank, you could end up having your vehicle taken away by the bank.
Can I get a loan for a used Vehicle?
Yes, banks accept applications for used vehicles apart from new vehicles.
Which is the maximum amount of the loan that I can afford?
The maximum amount of the loan approved can vary from one bank to another. Generally, banks support loan amounts ranging from 80% to 90% of the car's on-road price. Few banks also lend 100% of the ex-showroom price to the car. In addition to these requirements, the percentage of funding offered depends on the size, type of car (standard / premium) and whether you are applying for a new or pre-owned vehicle.
Will I need a guarantor for a loan or a co-borrower?
A loan guarantor or co-borrower is only needed if you are unable to meet the eligibility requirements set out by the lending agency, such as monthly income, age or credit score. Otherwise, you can apply for a car loan on your own.
Auto Loan Interest Rates comparison (Few Major Banks)
|S.No.||Bank||PL – Rate of Interest|
Disclaimer: The below figures are as on April 1st 2020, and are subject to change basis the bank’s discretion and/or policy at any time. Hence it is advisable to check with the bank at the time of application for the current and applicable rate of interest.