Car loans are among the most sought-after financial products in India since a decade and the trend of availing car loans is increasing by leaps and bounds. A number of financial firms and private sector banks in India have laid their focus on the auto loan sector for generating revenue in the form of interest. The car companies in collaboration with the auto loan providers are rolling out plenty of customised offers to attract the customers for availing car loans at varied interest rates.
While there are already a number of cars on the market, and many of them are in the queue to get launched soon, buying a car has become a cakewalk. Ranging from budget-friendly cars to luxury cars like sedans, there are a number of options to choose from. Hence, there are a variety of options these days for people who are willing to buy new cars at an affordable price range. There is lower interest for government employees depending on the loan amount and other vital parameters. The rate of interest on the car loans depends on a number of factors which include the loan amount, vehicle type, borrower’s credit record and several others.
The entire process of applying for a car loan has been simplified by the banks for the ease of the borrowers. These days right from applying till loan approval and disbursal everything can be done online without any personal visits to the banks. The entire process of the application works in the following way:
Applicant’s CIBIL score- The CIBIL score plays a vital role when it comes to car loan approval in India. CIBIL score is the rating given to an individual customer by the Bureau of CIBIL based on his/her past loan repayment record. If the borrower is found to be consistent in paying the loan EMIs on time, the person is given a high rating. On the contrary, borrowers who were not regular with their EMI payments are offered a low credit score.
Car loan repayment period- Usually in India the car loan repayment period ranges between 1-7 years. It is up to the comfort of the borrower what repayment tenure he/she wants to pick. The repayment tenure has a significant role to play in deciding the monthly EMIs. If the tenure is higher, the EMIs are low and if the tenure is shorter, the EMIs are naturally more. However, it is preferable that the buyers fix a shorter repayment tenure as they will otherwise have to pay more as interest.
Age of the car- The age of the vehicle is a very important aspect which the lenders consider while offering a car loan in India. The age of the car is very important to determine the value of the car. Usually, in India, the value of a car starts depreciating the moment it is driven out of the showroom at least by 10%. After that, with every passing year, the value keeps on decreasing. Banks or lenders provide used car loans for pre-owned cars which are not more than 3 years old. This way they ensure that in case of loan defaults they will be able to collect the invested money by repossessing the value without ending into a loss.
The interest rate is the most vital decisive factor of a car loan. In other words, the interest rate is the sale bait which is used by the banks and finance agencies to sell their loan products. In this regard, it can safely say that that the car loans at present work in India on the basis of promotion and the level of competition is very intense and high. For example, if one bank offers car loans starting from 8.99% p.a. other banks challenge it by offering loans at 8.50% p.a. or even lesser. On an average, the top leading banks and other financial agencies in India are offering car loans at an interest rate ranging from 10% p.a. to 13% p.a. However, the interest rate is not same for all the borrowers and it varies from case to case. Depending on the borrower's profile, applied loan amount, repayment tenure and certain other factors a final interest rate is offered by the banks to the borrowers.
With the ever-rising fuel prices and the high-interest rates, a borrower needs to carefully analyse all the available car loan products from various banks and agencies before making the final purchase call. While analysing how interest rates work in India, the buyers are streamlined by the experts according to their income levels. While around 6% interest rate is suitable for salaried individuals within the age group of 21 to 60 years, the interest rate of up to 8% is good enough for self-employed individuals. To get the best out of a car loan, first finalise the car model that you want to buy, then the amount of down payment and then decide the interest rates.
The interest rate offered by the banks are negotiable in certain cases. Borrowers can bring down the rate on the basis of their eligibility factors. Hence, a buyer should shop around and discuss with at least 3-4 banks to get the best loan rate. Before starting the discussion, do your research on the car loan interest rate trends and other facts to have an upper hand in the discussion. Though, the car loan interest rates have started dipping as car manufacturers these days are providing subsidised car loans at lower interest rates, be wise and try all means to get hold of the best offer that the car loan market in India has in store.