Banks in India provide loans for the purchase of new, used, and green cars to salaried individuals, self-employed professionals, and businesspersons. In a market where banks often deploy their best sales personnel to promote loans, sometimes manipulating customers, it is crucial for consumers to stay vigilant and compare car loan offers from all leading banks. This blog aims to equip you with essential knowledge on how to select and secure a car loan in India. Additionally, it will provide current interest rates and key concepts to consider when taking a car loan in India. By reading this blog post, you will understand all the important aspects to keep in mind before sanctioning a car loan.
Here’s the latest information on car loan interest rates offered by top banks in India, along with the processing fees. The EMI section has been removed for clarity.
| Name of Bank | Interest Rate (%) | Processing Fee |
|---|---|---|
| UCO Bank | 8.45 – 10.55 | Nil |
| Union Bank of India | 8.70 – 10.45 | ₹1,000 |
| Canara Bank | 8.70 – 12.70 | 0.25% (Maximum ₹2,500) |
| Bank of Maharashtra | 8.70 – 13.00 | 0.25% (₹1,000 – ₹15,000) |
| Punjab National Bank | 8.75 – 10.60 | 0.25% (₹1,000 – ₹1,500) |
| State Bank of India | 8.75 – 9.80 | Up to ₹1,500 |
| South Indian Bank | 8.75 onwards | 0.75% (Max: ₹10,000) |
| IDBI Bank | 8.80 – 9.60 | ₹2,500 |
| Bank of Baroda | 8.85 – 12.70 | Up to ₹2,000 |
| Bank of India | 8.85 – 10.85 | 0.25% (₹1,000 – ₹5,000) |
This table provides a quick reference for comparing car loan interest rates and processing fees across various banks in India.
Here are some mistakes that you should avoid in taking car loan;
- Before applying for a car loan, it is important to check your eligibility to avoid rejection, as multiple rejections can negatively impact your credit score. A good credit score, typically 750 or above, is essential for instant loan approval as it indicates your creditworthiness. Banks generally offer car loans to individuals aged 21 to 65 years who have a good credit score, steady income, and stable occupation.
- When selecting a car loan tenure, it’s crucial to use an EMI calculator to make an informed decision. A shorter loan tenure results in higher monthly EMIs but allows you to pay off the debt faster and minimize overall interest payments. Conversely, a longer loan tenure means smaller EMIs but higher total interest payments over time. Car loan tenures typically range from 1 to 7 years, depending on whether you choose a new car loan, a used car loan, or a loan against a car. Using an online EMI calculator can help you choose the most suitable tenure for your financial situation.
- Car loan interest rates, processing fees, prepayment fees, and other charges vary among lenders. It’s important to compare car loan offers from top banks and NBFCs to find one with a low interest rate, minimal or zero processing fees, a suitable loan tenure, and flexible repayment options. With numerous car loan offers available, thorough research is essential to avoid missing out on good deals. Using a reliable third-party website to compare the features and benefits of various loan offers can help you refine your search and select the best option.
- Stick to your budget when choosing a car. Car showroom salespersons are skilled at persuading customers to consider more expensive models with advanced features, but it’s important to remain firm on your initial choice and budget. Otherwise, you may end up with an unaffordable car loan. Defaulting on a car loan can negatively impact your credit score and credit history, making it harder to secure future loans. Therefore, avoid the temptation to exceed your budget to prevent financial strain and protect your creditworthiness.
- Maintaining a low debt-to-income ratio is crucial to avoid defaulting on your car loan. Ensure that your car loan EMIs do not exceed more than 30% of your income to prevent financial strain. Defaulting on your car loan could lead to repossession by the bank, with the vehicle being auctioned to cover outstanding dues.
- Additionally, making a substantial down payment can minimize the cost of your car loan. A higher down payment results in lower loan amounts and, consequently, lower interest payments. If you have the funds available, consider making a significant down payment on your chosen car to reduce the overall cost of financing through the bank.
- Avoid pre-closing your car loan to maintain a positive credit history. Timely EMI payments improve your credit score. Pre-closing incurs penalty fees and can result in a lower credit score. Instead, consider making part payments (prepayments) after 12 EMI payments, though they may also have penalty fees.
Eligibility Criteria and Documents Required for taking car loan
| Eligibility Criteria | Documents Required |
| Age: 21-65 years (may vary by lender) | Proof of Identity (PAN card, Aadhaar, etc.) |
| Employment: Salaried or self-employed individuals | Proof of Address (Utility bills, etc.) |
| Income: Minimum income requirements (varies by bank) | Income Proof (Salary slips, ITR, etc.) |
| Employment stability: Minimum work experience | Bank Statements (3-6 months) |
| Credit Score: Good credit history (varies by bank) | Passport-size photographs |
| Car Documents: Vehicle details and insurance | Any other specific documents as requested |
How to calculate car loan
To calculate the EMI (Equated Monthly Installment) for a car loan, you can use the following simplified formula:
EMI = [P x R x (1+R)^N] / [(1+R)^N – 1]
Where:
- P = Loan amount
- R = Monthly interest rate
- N = Number of installments
Example:
Suppose you’re taking a car loan of 8,00,000 INR with an annual interest rate of 10% for a tenure of 4 years (48 months).
First, calculate the monthly interest rate: Monthly interest rate (R) = Annual interest rate / 12 = 10% / 12 = 0.0083333 (approximately)
Now, calculate the EMI using the formula: EMI = [P x R x (1+R)^N] / [(1+R)^N – 1] = [800000 x 0.0083333 x (1+0.0083333)^48] / [(1+0.0083333)^48 – 1]
Using this formula, you can find the EMI amount, which represents your monthly installment for repaying the car loan.
YOU CAN ALSO TAKE HELP OF ONLINE CALCULATOR FOR CALCULATING CAR LOAN.
Benefits of Car Loan
Individuals can benefit from car loans in several ways:
- Affordability: Car loans make purchasing a car more affordable by spreading the expense over an extended period, easing the burden on their budget.
- Convenience: Car loans offer the convenience of quick ownership, allowing individuals to enjoy the benefits of having a vehicle sooner.
- Credit Building: Timely repayment of auto loans helps borrowers build a positive credit history, which is beneficial for future loan applications.
Income Tax Benefits on Car Loans:
- Generally, there are no specific income tax advantages for personal auto loans.
- However, businesses and self-employed individuals may be able to deduct auto loan interest as a business expense, subject to certain restrictions.
- Consulting with a tax expert or reviewing current tax regulations is essential for specific information and eligibility requirements.
Income Tax Benefits on Car Loans for Electric Vehicles:
- Income tax incentives are available on car loans used to finance electric vehicle purchases.
- Under Section 80 EEB of the Income Tax Act, individuals can deduct up to 1.5 lakhs of the loan interest paid.
- This deduction applies to loans taken between April 1, 2019, and March 31, 2023, subject to certain restrictions.
Conclusion-
Owning a car represents a significant financial investment, requiring careful money management decisions. When considering a car loan or searching for the best option in India, it’s essential to factor in repayment capabilities, bank interest rates, and the type of car loan required.
While car loans have made car ownership accessible to many in India, it’s crucial to assess all available options and consider various factors before committing to a loan. By doing so, individuals can make informed decisions that align with their financial situation and long-term goals.
Ohooooo thanks sir.