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India has witnessed a steep rise in the demand for cars. Indians have displayed an avid interest in acquiring more high-end cars, and this trend has continued unhindered by limits on financing since there are companies that are ready to finance up to 100% of the ‘on-road cost’ of the cars. Banks and other financial institutions offer car loans schemes that enable their customers to easily own a car but deciding on the right car finance/car loan option is very challenging.
Car loans in India are of two types: secured and unsecured car loans. It is important that you choose the right car loan scheme that is beneficial for you and ideally comes with “no strings attached”. Some conditions and policies may lead you to pay more than you accounted for. Since the last global financial crisis, unsecured loans have become limited in India.
Secured car loan as a form of financing is one in which the borrower has to place a collateral or security with the financial institution, while taking the car loan. Most car loans are secured either by the vehicle you intend to buy, or with a financial deposit of any form which would reduce the risk for the lender. Secured car loans offer better terms and lower interest rates compared to unsecured car loans. If you are using your car as the collateral, then you can avail an attractive rate of interest which ensures that your repayments will be affordable and won't weigh heavily on your finances. However, if you default on the loan, your lender can sell the car used as collateral, to pay off your loan and cover up the losses.
The average repayment tenure for a secured loan is up to 7 years, and the monthly installment amount is smaller than that of an unsecured loan. This type of financing offers some advantages, one being that it comes with a lower interest rate and flexible income requirements. Since the loan is backed by an asset, income level is not a major constraint for application. Eligible individuals ideally have a stable income, or income from other sources such as investment, etc.
Secured car loans are available at a fixed interest rate. This benefits you since the repayment amount won't be affected by any fluctuations in interest in the future. However, fixed rate loans aren’t as flexible as variable rate loans and in order to make additional payments/ pre-payments, a penalty will be levied.
A secured loan usually has a shorter term and thereby, the repayment amount will be higher so that it can be paid off in time. However, a secured loan ensures lower risk to the lender and hence, the interest rate applicable will be lower than that of an unsecured one.Features and Benefits