How to get a car loan: Earlier buying a car was a big deal for anyone, as it required a lump sum amount of money, it is everyone’s dream to have a branded car along with a house. Car not only makes your life comfortable but also reduces many difficulties. Coming to the office while battling public transport or going out for a weekend trip, everything becomes very easy.
Earlier, buying a car was a big deal for anyone, as a lump sum amount had to be spent for it, but now it has become very easy due to the availability of loans readily.
Banks and non-banking finance companies offer car loans in easy monthly installments, which has made it very easy to buy a car now. This does not spoil your budget and also provides convenience.
How to get a car loan
Lending companies give loans on both new and used cars. However, the interest rates on these two are different. The interest rates for new cars range between 9.25 -13.75 percent, while for used cars the interest rates range between 12.50 and 17.50 percent.
Who can take a Car Loan?
Before applying for the loan, there are some conditions, which you need to keep in mind. This includes information about age, minimum salary, type of job, and residence.
Documents Required for Car Loan
- Proof of Identity (PAN Card, Passport, Driving License, etc.)
- Address proof like Voter I card, Passport
- age proof
- car papers
- Proof of income like three months salary slip, six months bank statements, income tax return
- Some companies do not finalize the loan without a copy of the car insurance and driving license.
When you buy a car by taking a loan, it is mortgaged with the lending company. This gives them the right to confiscate your property in case they are unable to repay your loan. If you are not able to pay the monthly installment on time, then they can pick up the car and take it away.
A hypothecation letter is also a part of the car registration process. Once you repay the loan, you can remove the hypothecation of the lending company from the registration papers.
To remove the hypothecation, you will have to go to the concerned registration transport office with no objection certificate, car insurance papers, and address proof.
It is important to note here that it is necessary to take NOC from the company giving the loan. After this, give it to the insurance company and issue the insurance paper in the name of the new owner.
Car Loan Amount
The loan amount depends on your age and income. How much loan you get for the car depends on the lending company. At this time, generally, you can get a car loan up to four to six times your annual income.
Up to 80-90 percent of the cost of the car gets financed. Some banks, however, finance up to 100 percent. This could be the ex-showroom price or the on-road price.
Ex-showroom price is the amount paid to a dealer for buying a car. When you bring the car to drive on the road after paying registration charges, insurance, road tax, etc., then it is the on-road price.
When you go to take a loan for a second-hand car, then the expenses incurred in re-registration are not covered.
Interest Rates on Car Loan
In addition to the Marginal Cost of Funds (MCLR), the companies lending to the car loan amount also charge some extra amount. Usually, these rates are fixed. This makes it easier to repay the loan.
If you think that interest rates may come down in the future, then you can take interest on the floating rate. At present, the interest rates are in the range of 10.30-15.25 percent.
Some lending companies, however, also give a discount on the interest rate to women.
Taking a second-hand car loan instead of taking a new car is an expensive deal. Most of the banks charge more interest on this.
What are the expenses for a Car Loan?
Banks levy many charges for giving loans or repaying the loan ahead of time.
A processing fee is charged when you apply.
This can be 0.4-1 percent of the loan amount.
Banks charge fees for premature repayment of the loan.
Some banks charge five to six percent on this. Some banks however do not charge for this.
Some banks offer part payment facilities to repay the car loan. This means you can repay a part of the loan whenever you have the money. Some banks also charge a fee for payment. You cannot repay the loan within six months of taking the loan.
Generally, car loans are given for one to seven years. You can pay it ahead of time at your convenience.
Most banks finance medium cars, SUVs, and MUVs. However, before applying for the loan, you should check how much loan the bank is offering for which car.
If the car is purchased in the name of an individual, then no deduction on depreciation of income tax can be claimed for that. There is no tax benefit on a car loan.
While taking the loan, you should calculate the interest to be paid on the car loan.
Applying for a car loan is easy, as it has fewer documentation requirements. Here you do not even need to mortgage anything separately. The loan is secured with a car. However, you should keep your budget in mind while buying a car.