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Are you planning to get a car or a two-wheeler? Then, a vehicle loan will help make your dream vehicle a reality while keeping it affordable. We have gathered everything you need to know in one place, like eligibility criteria, interest rates, and even the process needed to apply for a vehicle loan.
- Compare car & bike loan lenders
- Read about the EMIs, documents required and approval process
- Save time, avoid hidden fees and make informed choices
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What is a Vehicle Loan?
Vehicle loans are a type of secured loan which are available to customers from banks and Non-Banking Financial Companies (NBFCs) specifically for the purchase of vehicles, including cars, motorcycles, scooters, and commercial vehicles. In essence, a vehicle loan helps buyers manage the cost of a vehicle purchase by enabling buyers to pay off the cost of their vehicle through a fixed number of Equal Monthly Installments or EMIs.
Since the car itself is the loan collateral, lenders are able to offer higher loan amounts at relatively low fixed interest rates, compared to an unsecured loan. Vehicle loans allow you to buy a new automobile and acquire any extras that suit your needs.
Features of Vehicle Loans
Here’s a snapshot of key features when applying for a vehicle loan:
| Feature | Details |
|---|---|
| Loan Amount | ₹1,00,000 to ₹1,00,00,000 (depending on vehicle) |
| Interest Rates | 8% to 13% p.a. |
| Tenure | 12 to 84 months |
| Disbursal Time | 1 to 3 working days |
| Documentation | PAN, Aadhaar, Income Proof, Vehicle Invoice |
| Mode | Online or through a dealership/bank |
Key Characteristics of Vehicle Loans:
Secured Loan
The vehicle being purchased is used as collateral.
Flexible Tenure
Loan tenure typically ranges from 12 months to 84 months.
Loan-to-Value (LTV)
Generally, lenders cover 85% to 90% of the on-road price for LTV.
Low Rates of Interest
As the loan is secured by collateral, rates of interest are relatively lower than personal loans.
Minimum Documentation
Disbursal can be faster with fewer documents, and easier to process.
Available for New & Used Vehicles
Loans are available for both new and used vehicles, with slightly different terms and conditions.
To summarize, a vehicle loan can help fulfill the dream of travel while remaining within a reasonable budget and not emptying your bank balance.
Car Loan Benefits
There are several benefits associated with vehicle loans that make purchasing a vehicle more affordable.
- EMI or Monthly Payments: With a vehicle loan, you can undertake loan repayment on a monthly basis (instead of a single lump sum), thus alleviating immediate cash concerns.
- Tenure: Most lenders offer tenures of 12 months to 84 months, so you can select what suits your budget.
- Low Down Payment: Usually a mere 10-20% down payment makes vehicle ownership a realistic option.
- Quick & Hassle-Free: You can usually apply online and undertake most of the process in real-time.
Choose a Vehicle Loan That Fits Your Needs
When choosing a vehicle loan, think about:
New vs. Used Vehicle Loan
Interest rates typically are lower on new car loans than on used cars because lenders perceive lower risk with new vehicles that have greater resale value.
Loan Amount
Banks and NBFCs typically finance 85-90% of the vehicle’s on-road price.
Type of Vehicle
Loan financing options are available for two-wheelers, cars, commercial vehicles, and electric vehicles.
Interest Rate
Review your options for fixed rate (constant EMIs) or floating rates (which vary based on the RBI repo rates).
Additional Charges
Be aware of fees for processing a loan or charges for prepayment, or late payments.
Features and Benefits of Vehicle Loans
Here are some features that are common and important value additions to vehicle loans:
- Attractive Interest Rates: Most lenders offer interest rates* of 7.5% – 13%, based on your credit score and the type of loan*.
- Flexible Repayment: Depending on work and financial circumstances, EMIs can be selected with tenures between 1-7 years with most banks.
- Limited Documentation: Digital KYC and online verification have made submitting documentation for a loan easier than before.
- Top-Up Loans: Some lenders offer top-up loans on existing vehicle loans.
- Insurance Tie-ups: Many lenders include loan protection insurance covering your down payment, insurance, and loan finance, and keep you informed throughout the loan process.
Car Loan Interest Rate Explained
By understanding car loan interest rates, you can assess the total amount you will need to repay and what the monthly EMI will be:
- What can affect interest rate: credit score, tenure of loan, vehicle type, down payment, and lender arrangement.
- Fixed interest rate: Payments have fixed monthly EMIs for the entire loan tenure.
- Floating rate: Payments change with changing interest rates.
- Market rate: Normally in the range of 7.5% to 13%. Banks, including Axis Bank and IndusInd Bank, vary their interest rates, with rates starting as low as 7.99%.
- Impact of tenure: Longer tenures reduce the monthly EMI payment, but you will pay more interest in total, or vice versa.
Car Loan Interest Rate Explained
By understanding car loan interest rates, you can assess the total amount you will need to repay and what the monthly EMI will be:
- What can affect interest rate: credit score, tenure of loan, vehicle type, down payment, and lender arrangement.
- Fixed interest rate: Payments have fixed monthly EMIs for the entire loan tenure.
- Floating rate: Payments change with changing interest rates.
- Market rate: Normally in the range of 7.5% to 13%. Banks, including Axis Bank and IndusInd Bank, vary their interest rates, with rates starting as low as 7.99%.
- Impact of tenure: Longer tenures reduce the monthly EMI payment, but you will pay more interest in total, or vice versa.
Car Loan Eligibility Criteria and Documentation
To get approved for a vehicle loan, you must meet certain eligibility criteria:
| Criteria | Details |
|---|---|
| Age | Generally between 21 and 60 years |
| Income | Minimum monthly income varies, usually ₹15,000+ for salaried applicants |
| Employment | Salaried, self-employed, professionals with stable income and employment history |
| Credit Score | Minimum CIBIL score of 650+ to get favorable interest rates |
| Residency | An Indian resident with valid identity and address proof |
| Existing Debts | Lower debt-to-income ratio preferred |
Documentation Required:
- Identity Proof: Aadhaar card, PAN card, Passport, Voter ID, etc.
- Address Proof: Utility bills, Aadhaar card, Passport, Rent agreement.
- Income Proof: Salary slips, bank statements, Income Tax Returns (ITR) for self-employed.
- Vehicle-related Documents: Quotation from the dealer, registration documents (for used vehicles or loan against car).
- Photographs: Recent passport-sized photographs.
How to Apply for a Car Loan
Applying for a car loan is easier than ever, thanks to digital advancements:
Research and Compare
Use online platforms or bank websites to compare interest rates, loan tenure, and other features.
Check Eligibility
Most banks offer online eligibility calculators.
Gather Documents
Keep all required documents ready for quick processing.
Online Application
Visit the lender’s website or app, fill out the loan application form, and upload documents.
Loan Approval and Sanction
The lender will verify your documents and credit score, then approve the loan.
Disbursement
On approval, the loan amount is disbursed directly to the dealer or your account.
Repayment
Pay monthly EMIs until the loan tenure ends.
Need Help Choosing the Right Vehicle Loan?
Understanding loan terms, interest rates, and eligibility can be overwhelming, but you don’t have to figure it out alone.
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Frequently Asked Questions
What is the interest rate on a car loan?
Interest rates vary between 7.5% to 13%, depending on your profile and lender.
Can I apply for a car loan online?
Yes, most banks provide a fully online application process for convenience.
What is the maximum loan tenure for vehicle loans?
Usually up to 7 years (84 months).
Is prepayment allowed?
Yes, prepayment and foreclosure options are available, often without penalties on floating-rate loans.
Can I get a loan against my existing car?
Yes, several lenders offer loan against car schemes with your vehicle as collateral.
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