Car Loan – Meaning, Features, and Eligibility

Owning a car was once a luxurious commodity to have. But in today’s economically developing world, a car is a necessity and convenience to travel from one corner of the ever-expanding city to the other. 

Though everybody may not have enough cash to purchase the car with a lump-sum payment, numerous lenders can help you realise your dream of buying the car through a car loan. 

Applying for a car loan is now hassle-free, easy, and paperless. Just make a few clicks, and you can submit the car loan application form online. Almost every bank today offers car loans at attractive interest rates. Based on one’s affordability, it is now quite easy to take a car loan and then pay EMIs without really biting into a person’s finances.

Top Car Loan Interest Rates 2021

Bank Name	Car Loan Interest Rate
State Bank of India	7.70% p.a. onwards
ICICI Bank	7.00% p.a. onwards
Indian Overseas Bank	7.25% p.a. onwards
Jammu Kashmir Bank	7.30% p.a. onwards
Canara Bank	7.40% p.a. onwards
HDFC Bank	7.50% p.a. onwards
Karur Vysya Bank	7.55% p.a. onwards
South Indian Bank	7.55% p.a. onwards
IDBI Bank	7.90% p.a. onwards
Yes Bank	7.95% p.a. onwards
Karnataka Bank	8.20% p.a. onwards
Federal Bank of India	8.25% p.a. onwards
Union Bank of India	MCLR + 0.35% onwards
Central Bank of India	Repo Rate + 4.80% onwards
Lakshmi Vilas Bank	RLLR + 0.75% onwards

Features and Benefits of Car Loan

• Get financing for purchasing new and used cars.
• The financing can go up to 85%-90% of the on-road price of the car. Some banks offer up to 100% financing on the vehicle’s on-road price to certain conditions.
• The loan tenure can range from one year up to seven years.
• The loan amount can be up to three times the annual income of the applicant.
• Some lenders offer instant financing facilities for cars.
• You may get additional discounts and offers if you choose to purchase a car from the dealer or manufacturer the bank has a tie-up with.
• The car purchased through financing will be held as collateral until the loan is repaid.
• The repayment structure most commonly followed for a car loan is equated monthly instalments (EMI).

Factors Affecting Car Loan

• Credit score
  
  Your lender will enquire about your credit score to understand your creditworthiness. Based on your report and score, the lender will take a call on the loan amount they are willing to lend you and the associated terms and conditions. 
  
  
• Debt-to-income ratio
  
  Lenders assess your income and the commitments you have to cater to at the end of the month to see if the new car loan and its EMIs fit in your budget. The lender will determine your ability to take a new loan and stand by it through the debt-to-income (DTI) ratio. If you have a high DTI score, you will get a lower loan amount irrespective of your income. There is the risk of your loan terms being stringent.
  
  
• Down payment
  
  Every car loan comes with a defined margin. Margin, here, means the amount of money or the percentage of the on-road car price that you will have to pay from your pocket. Though there are 100% financing loan schemes available in the market, they are subject to conditions.
  
  It is always favourable for you to save some money and use it as a downpayment so you can borrow less and pay less interest to the bank, reducing the total cost of car ownership. Lenders also prefer that you make a certain downpayment from your end. This gives the lenders a sense of guarantee that you are good at planning and managing your money well and will not bail out of the repayments suddenly.
  
  
• Age of vehicle
  
  In the case of used car loans, the age of the vehicle matters a lot in deciding the interest rate; it is a deciding factor in accepting or rejecting the loan application. 

Eligibility Criteria

Certain eligibility conditions should be met to go for a car loan, and one must make sure they have a proper understanding of that. Let’s see what these factors that will decide if you are eligible to buy a car are:

Details	Salaried	Self-employed
Age	21 – 60 years	18 – 65 years
Annual income	Rs 25,000	Minimum turnover of Rs 40 lakh
Credit Score	700	700
Loan Tenure	Up to 7 years	Up to 7 years
Loan to Value Ratio	Up to 100%	Up to 100%

Documents Required

• Photo ID and Age Proof 
  • PAN card
  • Passport
  • Driving license (mandatory)
• Signed application form 
• Three passport size photographs
• Residence Proof
  • Valid passport
  • Voter ID card
  • Driving license
  • Postpaid utility bill (gas bill and electricity bill)
  • Updated passbook or bank account statement
  • Notarised registered rent agreement
• Bank statement for the last six months
• Salaried individual
  • Last three months’ salary slips
  • Form 16 or Income Tax Returns
• Self-employed individual
  • Balance sheet and profit and loss account, computation of income for last two years.
  • Income Tax Returns – last two years for applicants, 26AS, Traces
  • Business proof : 
    • Gomasta License, Registration Certificate, Service Tax Registration, among others
  • IT Assessment/Clearance Certificate
  • Income Tax Challans/TDS Certificate (Form 16A)/Form 26 AS for income declared in ITR.

Car Loan EMI Calculator

Try the ClearTax Car Loan EMI Calculator to find out the EMI you will have to pay every month for a given loan amount. Just enter the values for the fields, such as the principal loan amount you are looking for (P), the loan tenure (N), and the rate of interest ®, to find the EMI you will have to pay to clear the loan.

What You Should Know

Before you apply for a car loan at a bank, we suggest that you keep the following things in mind.

Do your research

Research the rates, fees, and the other terms and conditions offered by multiple banks and lenders to understand the market and then choose the lender where you will submit your car loan application.

A slight difference in the interest rate and other terms may result in a huge difference over time.

Similarly, get quotations from different dealers for your desired vehicle. Further, some of these dealers may have a tie-up with the banks and may offer the same vehicle at a discounted price. Approaching multiple dealers can help you find and get the best deal for your car.

Provide complete documentation

Upon deciding the lender, you will approach, go through their website and keep the documents you need to submit with the loan application ready. Check for the validity of your driver’s license and other documents and get it renewed if the expiry is nearing.

Do not give the lender any chance to delay/disapprove the loan just because your documents aren’t up to the mark.

Choose the repayment tenure wisely

Use our car loan EMI calculator and figure out the EMI you have to pay for a given loan amount and repayment tenure. With this tool, you will figure out the approximate loan tenure you are comfortable with and the EMI you can handle every month.

With this homework, you will negotiate the loan repayment tenure and EMI matters confidently with the bank representative. Do not forget to consider the total cost of car ownership when you are at it.

A longer tenure may seem appealing from the EMI perspective but will cost you a lot more in interest payment.

Consider the total cost of owning the car

As stated earlier, the total cost of ownership is an important factor when purchasing a car. But many people fail to see the big picture.

To figure out the total cost of owning a car, you will have to consider the fees and charges applicable, the nature of the fees and charges, the interest rate, the down payment, the total money you will pay to the bank from the start of the loan until the time you completely pay off the debt, the fuel cost, the car insurance premiums, the tax you pay, and many other expenses.

Every bank may have set a different processing fee and documentation charges. Some lenders levy a penalty if you wish to close the loan account well before the loan tenure. All these factors play an important role while choosing the lender.

Check for offers and discounts

Most lenders provide festival offers and discounts during Indian festivals, such as Dasara and Deepavali. There may be many other occasions when the lenders or the car dealers come up with discounts and offers.

At times, there can be 0% finance schemes as well. Look out for such offers to save some pennies.

How to Apply?

Car loans can be availed through different modes. 

1. Directly visit the bank branch.
2. Apply online through your bank’s internet/mobile banking portal.
3. Get the financing through the car dealer.

The bank you choose will collect your documents and initiate the application processing, which includes checking your CIBIL score, the value of the asset (vehicle), eligibility conditions, and more, and then give a decision on your loan application based on the evaluation results.

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