Car Loan FAQs
Q1. What is a car loan?
A car loan is a borrowing instrument that a lender such as a bank or NBFC (non-banking financial company) provides an individual allowing him/her to purchase a car. Car loans have gained popularity in recent times as instead of being a luxury item or a symbol of status, cars have grown to become an essential commodity for the continuously growing middle class of India. With the increased popularity of car loans, most banks and NBFCs currently offer this type of loan to individuals who have a good credit history. One point to keep in mind regarding a car loan is the fact that this loan invests in a depreciating asset i.e. the asset (car) bought using this loan is in fact going to cost less over time.
Q2. Can I get a loan to purchase a used car?
Yes, car loan is offered for pre-used cars. But, the interest rate for such a loan would differ from that of a new car. However, the loan would only cover the price of the car itself, other costs as transfer of registration, etc. will have to borne by you.
Q3. Do I need collateral for a car loan?
Just as the name suggests, a car loan is a loan granted to an individual interested in buying a car. Therefore a car loan is a secured loan where the car you buy acts as a collateral. Therefore, there is no additional collateral requirement for a car loan. However, you do have to get the RC (registration certificate) of the car endorsed with the bank. This endorsement is cancelled after repayment of the loan is completed.
Q4. What are the benefits of applying for a car loan with Paisabazaar?
When you input your basic details into the Paisabazaar.com car loan eligibility tool, we provide you with all available options based on the information you provide us. After you get the complete list of lenders who might suit your specific requirement you can compare the various loan options based on tenure, interest rate, maximum loan amount as well as other factors. You can then go ahead and zero in on the offer that is best suited to your specific requirement. Paisabazaar streamlines the loan selection process, allowing you to derive the maximum benefits from your car loan.
Q5. What is the maximum amount of loan that I can avail?
The maximum loan amount approved may vary from one bank to the other. Usually, banks approve loan amounts that range from 80%–90% of the car’s on-road price. Few banks even lend 100% of the car’s ex-showroom price. In addition to these criteria, the percentage of financing offered depends on the price, type of car (standard/ premium) and whether you are applying for a new or pre-owned car.
Q6. What documents do I need to submit when applying for a car loan?
Like any other loan that you apply for, a car loan application requires self attested supporting documents such as income (last three pay slips/last acknowledged ITR), address and identity proof documents along with you PAN card. Other documentation requirements, if any, tend to differ from one lender to another.
Q7. What is the typical tenure of a car loan?
The tenure of a car loan ranges from 1 year to 5 years. The shorter the loan tenure, the higher is the EMI payable and the reverse is true for longer car loan tenures. Currently, a small number of lenders are engaged in providing car loans for longer durations of up to 7 years.
Q8. Is there a minimum salary requirement to apply for a car loan?
Though most lenders do not specify a minimum salary requirement, your loan application may be rejected in case your salary does not exceed a predetermined threshold level as required by the internal requirement of the bank. In such cases applying with a co-borrower might be a better idea to increase your chances of successfully applying for a car loan.
Q9. Do I need a loan guarantor or co-borrower?
A loan guarantor or a co-borrower is only required if you are unable to meet the eligibility criteria stated by the lending institution such as monthly income, age or credit score. Otherwise you can apply for a car loan on your own.
Q10. In which cases can my car loan application be rejected?
Your loan application may be rejected if you have a bad credit score, have defaulted on your repayments or applied for and been rejected for loans multiple times, etc. Also, you should meet the bank’s eligibility criteria such as minimum income level, age, previous relationship with the bank, etc. to get your loan approved.
Q11. Are there any tax benefits of a car loan?
No. Unlike a home loan, a car loan has no tax savings benefits what so ever. Therefore car loan amounts should always be tied to your actual requirement and splurging on a fancy car by taking a large loan amount is not a good idea.
Q12. What is the difference between a fixed rate and a floating rate car loan?
In case of a fixed rate car loan, the rate of interest applicable on the car loan remains the same over a period of time. Therefore fixed rate car loans have a specific EMI payout requirement that does not change due to market conditions. In case of a floating rate car loan, the applicable interest rate of the car loan varies periodically as per the decision of the lender. Thus the payable EMI on a floating rate loan may change from time to time.
Q13. Can interest rates be negotiated?
Yes, you can negotiate the interest rate applicable to your car loan by leveraging your credit history and prior relationship with the prospective lender. The regular payment of EMIs for previous loan/credit cards you had/have with your prospective lender can fetch you a car loan at a preferred (lower) interest rate.
Q14. How does the implementation of MCLR change the car loan EMI?
As per the RBI directive, from April 2016 onwards, banks are using MCLR (marginal cost of lending rate) to fix the interest rate on various loans including car loans. Currently the MCLR-based car loan rates are slightly lower than the base rate method that banks used earlier. However, changes in CRR, margin, bank operating expenses and deposit interest rates will change the MCLR and by extension the interest rates offered on car loans. Moreover, as per the new regulations, banks are required to revise their loan interest rates every 6 months or on a yearly basis.
Q15. Can I get financing for insurance and registration?
Car loans do not cover the insurance or registration fees that you have to pay at the time of buying the vehicle. Car insurance, which is mandatory, needs to be purchased separately and all vehicle registration-related costs also have to be borne by you as they are not covered by your car loan. However, there are few banks that cover these costs under special schemes.
Q16. Can I pre-pay my car loan?
Pre-payment of car loans is allowed by many lenders however there are usually a few terms and conditions attached. For starters, the lenders only allow car loan repayment after you have completed specified loan tenure and there is usually a pre-payment penalty as well. The prepayment penalty charges usually range from 1%-4% of the. It is recommended that you confirm all relevant charges with a bank before you make a pre-payment.
Q17. Can I sell my car before repayment of the car loan is completed?
No. Lenders who provide car loans to individuals only allow the car to be sold to a new owner when the loan has been paid off in full. This is because, you need to a get a NOC from the bank before you can sell you car and the document is released only after you have paid off the car loan in full.
Q18. How can I make my loan EMI payments?
Repayment of loan can be done through post dated cheques (PDC) provided by you to your lender when signing up for the car loan. The other option is an auto debit facility where the EMI is automatically debited from your savings account after you have provided an ECS (Electronic Clearing Service) mandate to the lender.
Q19. What if I don’t pay EMIs on time?
Generally, banks treat you as a defaulter if you fail to pay two or more EMIs in a timely manner. You will initially be charged a penalty fee and asked to regularise your payments. If you fail to regularise your payments after repeated notifications, the financial institution can legally repossess your vehicle. Subsequently, your credit score will also take a hit and in the future, you will face complications in future loan approvals.
Q20. What should I do after paying the last EMI?
Once you have paid off your loan in full, the bank issues Form 35 & NOC (No Objection Certificate) to the RTO (Road Transport Office) and the lender’s name will get removed from the RC book endorsement.
Q21. Should I take a loan from the bank where I have an account?
Instead of going to separate banks in order to find the best car loan deal, log on to Paisabazaar.com and input your basic information. Within minutes you will have a range of options at your finger tips and you can compare available options to zero in on the one that’s best for you. Moreover, it is not mandatory to have an account with the bank which you approach for a loan. You can quite certainly opt for a loan with the bank that offers you the lowest interest rate. But, availing loan from a bank or a lender you have previous experience with may help you get hassle-free approval, faster processing, waiver of processing fees, etc.
Q22. What is zero percent Financing?
Zero percent financing is an offer provided by a few automobile manufacturers in collaboration with the lender. Under this plan, the automobile manufacturer is responsible for paying back the interest on the car loan to the financier instead of the borrower.
Q23. Why are zero percent financing car models more expensive than the other ones?
As the manufacturer is liable to pay the interest component of the car loan, the manufacturer would have to maintain a higher profit margin on the sale. That is the reason why, the cost of zero financing car models is usually greater than the cost of car models that do not have this feature.
Q24. Are there any special terms and conditions associated with the zero percent financing option?
There are usually quite a few terms and conditions in case of zero financing options that are not usually applicable in case of a standard car loan. For example, the usual tenure of a zero financing loan ranges from 12 months to 15 months hence your premium payments will be much higher than that in case of a standard car loan. Additionally, you often have to pay a much larger down payment amount as compared to the standard car loan, which is bound to stretch your monthly budget.
Q25. What are some of the top car loan providers in India?
Car loans are provided by most traditional banks including HDFC Bank, SBI, ICICI Bank, Union Bank, Kotak Bank, Axis Bank and many others. You can easily apply for a car loan with these as well as many others banks through Paisabazaar.
Q26. Can I take a car loan from lenders other than traditional banks?
Yes. Through Paisabazaar you can apply for a car loan with traditional banks as well as with NBFCs. You can take a car loan from a number of NBFCs (non-banking financial companies) that offer car loans to individuals. Some of the leading NBFCs that provide car loans to prospective car purchasers include Mahindra Finance, L&T, AU Financiers, Bajaj Allianz, Sundaram Finance, Reliance Consumer Finance and others. Car loan offers from NBFCs are often as competitive as those offered by traditional banks.