Owning a car has become a necessity today. However, purchasing the car of your dreams requires a significant amount of money, which might not be feasible for everyone.
Don’t worry! Instead of postponing your plan to get a motor vehicle, take the help of the various car finance options available in the market. Here is a complete guide to car finance to help you make an informed decision.
Table of Contents
Types of Car Loans
Listed below are the various types of car financing options available in the market:
- New Car Loan: If you are planning to buy a new car, financial institutions are prepared to offer you up to 90% of the vehicle’s on-road cost. You must pay the remaining 10%, which includes showroom costs, insurance, registration fees by RTO and applicable road tax.
- Used Car Loan: Buying a used car is a very cost-effective option. If you are planning to invest in a pre-owned car, then banks and other financial institutions offer up to 75% of the pre-owned vehicle. The purchased car serves as a security to the bank until you finish paying out the loan.
- Loan against car: A loan against your car is a personal loan that you can get by using your car as security. This is a great way to get instant liquidity, as banks offer a range of loan amounts, starting from Rs 10 lakh to even 100% of your car’s valuation price. The only drawback is that the rate of interest for a loan against a car is on the higher side.
Key features of Car Finance
- Loan Tenure: Another significant feature is flexibility in loan tenure, which typically ranges from 1 year to 7 years. This gives you ample time to repay the loan amount. Choose a loan payout cycle that suits your financial needs.
A longer tenure will reduce your monthly EMI but may increase the interest amount. Similarly, a shorter tenure may mean a higher monthly EMI but a lower interest amount.
- Interest rates: Interest rates determine the cost of borrowing and are a major factor in determining a loan’s amount and tenure. In India, interest rates are either fixed or floating, and the percentage is based on the loan’s amount and tenure.
Fixed interest rates stay constant throughout the tenure, whereas floating rates change according to market movements.
- Car Loan EMI: Equated Monthly Interests(EMI) are crucial in determining the amount of the monthly payout estimate of your loan tenure. EMIs are calculated by taking into account the loan amount, interest rate, and tenure. You can use the free Car Loan EMI Calculator online, available on a bank’s website, to understand your repayment structure.
- Processing Fee: Financial institutions charge a nominal processing fee, which is deducted from your loan amount. The fee covers administrative costs, such as the loan approval process and additional resources.
Eligibility criteria and documents required for Car Finance
- Age – Minimum 21 years and maximum 60 years (65 for self-employed individuals).
- Annual Salary – Minimum Net Annual Salary Rs 2,40,000 per annum.
- Income Eligibility – Income eligibility as per Form 16 for salaried employees and Tax returns for self-employed individuals.
- Employment Criteria – Minimum 1 year of continuous employment (3 years for self-employed individuals).
Documents required for Car Finance
- Application form
- Proforma invoice
- Passport-size photographs of each applicant
- KYC documents
- Proof of income, such as salary slips, bank statements, tax returns, etc.
Conclusion
Car finance in India provides a practical solution for individuals looking to purchase their dream car. Whether they need a new car loan or want to finance a pre-owned vehicle, car finance can help them easily fulfil their car ownership dreams.
