All you need to know about Vehicle/Car Loan

Car is slowly becoming part of every Indian household due to rising purchasing power of young Indian middle class .Sales are being driven by young first time buyers who generally take car loan to accomplish their dream of owning a car.

 

Vehicle loans are available both for new and preowned (second hand) cars. Some financers reimburse finance for the cars purchased by individuals  on their own

vehicle loan
Points to remember while taking a vehicle loan

1.Interest rate: Vehicle loans are available at an attractive interest rate. Interest rate offered may be tad more than home loan interest rate, if you have good profile and select longer tenure.

 

Interest will depend on below factors

  • Your existing relationship with the bank. It means you stand to get better interest rate if you have existing account or loan with bank.

  • Pre-Owned car will attract a higher interest rate compared to brand new car. Pre-owned cars age will also decide the interest rate.

  • Lower tenure loans will generally attract higher interest rate as compared to higher tenure loans.

  • You may be charged a higher interest rate if you do not have a good credit score.

 

2.Tenure: Maximum tenure available for new vehicle will around 7 years (84 months). For preowned cars it may be limited to 5      years (60 months) depending on age of the cars.

Tenure is not allowed beyond individuals retirement age. It means if your current age is 57 years and your retirement age is           60yr then maximum loan tenure available will be 3 yrs.

 

3.Loan amount: Finance is generally available for 80% of on-road price of vehicle or 85% of ex- showroom price, percentage may depend on financer’s policy. Finance is available even for 100% of ex-showroom but it is at discretion of the financer.Max loan amount will be generally be limited to 48 times of monthly income of salaried individual or 4 times annual net profit of self-employed individual. Your loan eligibility will also depend on your monthly surplus income after paying EMI for existing loans if any. 

 

4.Eligbility criteriaYour eligibility depends on below listed points

  • Age more than 21 years and less than or retirement age (whichever is lower).

  • Annual income more than 3 lacs(this amount will vary depending  on financer’s policy) .

  • Sound credit score

  • Minimum 1 year of continuous employment for salaried individuals and 3yrs in business for self-employed.   

        

5.EMI: Monthly instalment is calculated based on reducing balance method depending on your loan amount, tenure and interest    rate.

 You will have to pay approximately Rs. 1700 per lac as EMI at interest rate of 10.5% and tenure of 7 years.

 

6.Hypothecation: In vehicle loan your car will be hypothecated as collateral for your loan amount. It means financer can take        charge of your car in case of default by you and you cannot sell the car till you have settled the loan amount.

 

7.Guarantor: No guarantor is required for vehicle loan, unless you do not meet the credit criteria. In extreme cases the financer   may ask for co-applicant or guarantor.

 

8.Documents required:

  • Proof of Identity: Passport copy, PAN Card, Voters Id card, driving licence( Laminated, Recent, Legible)

  • Income Proof: Latest salary slip with form 16 for salaried individuals and two year tax returns for self-employed individuals. 

  • Address Proof: Ration card/Driving licence/Voters card/passport copy/telephone bill/ electricity bill/Life insurance policy PAN Card.

  • Bank Statement: Last 6 months.

Tips to get a hassle free, quick and cheaper vehicle loan.
  • Approach bank where you own a salary account or loan account.

 

  • Pay your pending large credit card bills or personal loans to improve your eligibility.

 

  • Check your CIBIL score and ensure that it is above 750.

 

  • Including your parent/spouse to improve your eligibility.

 

  • In manner in which your spend time in choosing a vehicle, dedicate sufficient time for choosing a loan financer. Compare loans from minimum 3-4 financers to get best deal.

 

  • Ensure that your car loan is linked to financer base rate so that you will benefit of any changes in market interest rate.

 

  • Read the fine print particularly processing charges, pre-payment charges, foreclosure charges, method for interest rate calculation.

 

  • Get vehicle insurance premium quote on your own and compare it with that being offered by your auto dealer. You might end up with a cheaper deal.

 

  • Approaching a financer and car dealer on month end or year end might result in you getting a cheaper deal or bargain. Idea being this is that they have to meet their monthly and yearly sales target and there is high probability that they may offer you a bargain.

     

     

Our Opinion

Your car value is going to depreciate with time unlike other investment like buying a house where value increases with time. Buy car depending on your usage and budget. Give priority to building a corpus for buying house, marriage, child education and retirement over buying a car.

 

No income tax benefit is available on car loan. Yearly insurance payment, vehicle maintenance, fuel costs and parking charges will add to your expenses.