The amount of loan that banksoffer can go from a few hundred rupees to several crores rupees. Banks usually classify the various types of loans based on the needs of the customer. Only a personal loan is a category of loans that a person can get without specifying a particular need. For all the other needs such as establishing a business, buying a car or a house, banks have special loans that are further classified depending upon the amount of the loan.
What are Car Loans?
Car loans are a considerable amount of part of the loan industry. These are often known as Auto loans too. These loans help the users by a car for personal use. In case you wish to start a business with the car, you need to opt for a business or a personal loan. Car loans are specifically made for financing four-wheeler vehicles. For two-wheeler vehicles, you have a different two-wheeler vehicle loan.
After the recent ramifications in the budget, the car loans are likely to receive a minor relief in interest rates. Therefore, the overall cost of purchasing a car via external financing will reduce considerably. Apart from this, several governmental and private organizations provide an extra financing scheme to their most valuable employees to either use the company’s vehicle or finance to purchase a new personal vehicle.
It is better to go for a specific car loan than taking a personal loan to buy a car as the car loans are often available at lower interest rates than personal loans. Only a few people know that there are various types of car loans that a bank can provide depending upon the needs of the user. Here we shall classify the most common type of car loans for you to understand. Some of the terms/types of loans that you may come across while financing a car are given below.
Types of Car Loans
There are several types of car loans that you can apply for at a bank. The names of these loans may differ from bank to bank. Some of the most common 8 types of car loans that a bank offers includes,
- Secured Car Loan – You might get a secured loan on a luxury car or a car that costs more than 20L Rupees. In case you require a large amount of loan, for example, more than 10L, you might need to put a collateral against the loan that you take. Very few banks also offer a high amount of car loan over mortgage since the resale value of a car reduces considerably after it is used once. Since it is difficult to liquidate a car possession to a high amount, the bank officials prefer having other means of collateral for the vehicle.
- Unsecured Car Loan – This is the most common type of car loan and it is given to the people who wish to purchase a budget/hatchback car. You do not need to put a collateral for the loan amount to get an unsecured car loan. However, the amount of loan that you can get using an unsecured car loan is considerably lesser than the amount you can get with a secured car loan.
- Pre-computed Interest Loans – The pre-computed interest loan is the most commonly availed type of car loan. The interest is calculated over the loaned sum and is divided by the repayment period that you choose. The only downside to this type of car loan is that you cannot make prepayments and expect the bank to let go of the interest rate. In case you do wish to make the prepayment, you must pay the entire interest sum along with the amount.
- Simple Interest Loans – A simple interest loan is almost the same as a pre-computed loan with one major difference. Unlike in the case of a pre-computed loan, the simple interest loan allows you to make the prepayment at zero charges. Since the interest on the loan is calculated on a daily basis, it is beneficial for a person to pay off the loan at the earliest time possible to save money on paying lesser interest.
- Special Car Loans – Under certain situations, the person applying for a loan is entitled to a special car loan which is a combination of two or more of the features of the other loans.
- New Car Loan – New car loan is the type of loan that you get from the bank to purchase a new car. You can get a loan for a new car much faster compared to getting a loan for an old car. In case you wish to get a car loan for a second-hand car fast, you can get a car from the official refurbishing centre of the vehicle manufacturer. These refurbishing centres run their own financing schemes that allow you to apply for a loan in a simplified manner with all the necessary documents.
- Used Car Loan – Getting a used car loan is usually more difficult compared to the process of getting a loan for a new car. However, in case you are able to furnish the servicing report as well as repair report for the car from the authorised service centres, you can get the loan at a faster pace. If nothing works out, you can always opt for a personal loan to buy the car.
- Car Refinance Loan – This type of loan is often considered as a loan over a loan. This helps a person who is unable to pay a high amount of instalment for the loan that he already took on the vehicle. You might end up paying more for a car refinance loan since you are entitled to a higher interest rate.
Some banks also take into consideration the type and purpose of car, luxury or otherwise, into consideration before granting a loan. Therefore, you may need to furnish documents from your Auto showroom agent about the type of car that you wish to purchase. Several companies like Bajaj Finserv specialize in offering a car loan at lower interest rates.
In case you wish to buy a car during the vehicle season, you may be entitled to a lower-interest rate car loan. Several companies like Tata, Maruti Suzuki, Hyundai, Chevrolet, etc. launch offers such as zero processing fee, and bonanza discount packages during Diwali and Holi to attract customers.
When to Apply for a Car Loan?
There are several reasons why one may apply for a loan. Some of these reasons include,
- Buy a New Car – You can apply for a car loan to buy a new car.
- Buy an Old Car – You can apply for a car loan to buy a second-hand/used car. Getting a loan on a used car is comparatively difficult than getting a loan on a new car.
- Lease Buyout – In case you are unable to pay the amount to a bank, a commercial vendor will help you fulfil the instalments under the condition that you pay a higher interest rate over a longer repayment period.
It is crucial to consider the following factors before you apply for a car loan.
- Type of Car– You must have a clear idea on the type of car that you wish to purchase before applying for a loan. There are several types of cars currently available in the Indian auto-market. Make sure you test drive various cars before finally deciding upon which car you wish to buy. You also need to assess the availability of the service centre near your house to make sure that your vehicle receives the necessary care from time to time.
- Car Insurance – Investment in a car insurance is a very important factor that you need to consider when you buy a new car. In several cases, the car insurance amount is significant and a large fraction of the total price of the car. The insurance amount that you need to pay on a used car is significantly higher than the amount that you pay on a new vehicle.
- Added Packages – The base price of the car as displayed in the brochures is rarely its final price. You need to visit the showroom and talk to the salesperson to get a better idea of the accessories that you might require with the car. These added packages often cost a significant amount and you need to consider these added costs before applying for the loan.
- Discounts – It is often possible to get heavy discounts on a new vehicle if you know how to bargain. Make sure you ask for a discount before putting up a quotation on the car finally.
- Holiday Offers – Buying a new car during the holiday season is advisable since most of the major car manufacturers in India launch several exciting offers to attract the customers. Holiday offers can reduce the price of the car considerably or give you access to free vehicle add-ons.
Best Banks for Car Loans
Most of the major banks in the country offer a car loan. Some of the banks that offer a car loan at a lower interest rate compared to other banks include,
- HDFC Bank,
- Canara Bank,
- Axis Bank,
- Central Bank,
- Oriental Bank, etc.
The processing fee for certain banks is considerably high. Make sure that you check the processing fee for the loan before accepting a loan from a particular bank.
Eligibility Criteria for a Car Loan
The eligibility criteria for a car loan is almost the same as the criteria for any other loan. The major criteria for a fast processing of a car loan includes,
- Good credit score,
- High amount of regular income,
- Account with the particular bank,
- Minimum 21 years of age.
List of Documents Required for Application of a Car Loan
The documents required for a car loan include,
- Identity Proof – Pan Card, Driving License,
- Proof of Residence,
- Bank Statement – For the account where you deposit your salary,
- Salary Slips for the past 3-4 months,
- Passport Size photographs.
Benefits of a Car Loan
There are several benefits of getting a car loan. Some of them include,
- Longer repayment periods,
- Small instalments,
- Flexibility depending upon the choice of the car,
- Low-interest rates,
- Zero processing fee during holidays,
- Access to annual offers by the company as well as the bank, etc.