What is a car loan?

A car loan (also known as an automobile loan, or auto loan) is a sum of money a
consumer borrows in order to purchase a car. Car loans follow most of the same
rules and procedures that apply to other loans. In most cases when purchasing a car,
a borrower will specifically apply for a car loan; however, a consumer can also use a
personal loan (a loan obtained by an individual to use at his or her discretion) for the
same purpose. All car loans are for specific lengths of time, generally anywhere
between 24 and 60 months, although some car loans can be for longer periods. This
type of loan is also known as financing. Car loans generally include a variety of fees
and taxes, which are added to the total loan amount.

Types of Car Loans

A car loan is nothing but the funds that one borrows from a lender for the sole purpose of purchasing
a car of his or her choice. Lenders like banks and Non-Banking Financial Companies (NBFCs) offer
auto finance to consumers in the form of new and used car loans. From luxury sedans to
hatchbacks, car loans are available for almost all passenger vehicles and commercial vehicles in the
market. A car loan is repaid with interest through Equated Monthly Installments (EMIs) over a
specified period of time called the loan tenure.

There are 3 types of car loans available in India:

 New Car Loan: As the name suggests, a new car loan can be used to purchase a brand
new car straight out of the showroom. Banks offer new car loans at an interest rate of 9-14% p.a.
for a loan tenure of 1 to 7 years. New car loans are available for most makes and models of cars
in the market.
 Used Car Loan: Banks and NBFCs offer used car loans up to 80-85% of the price of the
car at an interest rate of 12-18% p.a. for a loan tenure ranging from 1 to 5 years. Used car loans
can be used to purchase pre-owned or used cars that are less than 5 years old or doesn’t exceed
more than 10 years at the time of loan maturity.
 Loan against Car: When one is in dire need of funds, he or she can pledge his or her old
car as collateral in order to obtain sufficient funds to purchase a new car. This is known as Loan
against Car. Some banks in India offer loan against car up to Rs.10 lakh or 100% of the value of
the car at an interest rate of 14-15% p.a. for a loan tenure of 1 to 3 years. For instance, if you
have a bad credit score, you can pledge your old car to the bank as collateral to obtain some
much-needed funds.

What are the features of a car loan?

Understanding how a car loan works can help you choose a suitable car loan offer. Here are the
important features of a car loan:
 Car loan amount: Banks offer a maximum car loan of up to 85-100% of the on-road
price/ex-showroom price of the car. If you pay a high down-payment on your chosen car, then the
cost of your car loan will be less.
 Car loan tenure: You can opt for a short or long car loan tenure ranging from 1 to 7 years. A
short loan tenure will ensure you repay your loan in a short period of time but will have high EMIs
whereas a long tenure will have low EMIs but you will end up paying more in interest payments. It
is advisable to use an online car loan EMI calculator tool to choose a suitable car loan tenure so
that you can save up on interest payments.
 Car loan interest rate:In order to repay your car loan, you have to pay interest on the
principal loan amount every month over the chosen loan tenure. The interest rate of a car loan will
vary depending on the bank you choose. Visit a third-party website to compare various car loan
offers across the top banks and choose one that offers the lowest interest rate.
 Car loan EMI: Car loan is repaid to the bank in Equated Monthly Installments (EMIs). In
order to get instant and accurate results of EMI calculation, use the online car loan EMI calculator
that is available for free on the bank website or a reliable third-party website. The tool is easy to
use - all you have to do is enter the loan amount, interest rate, loan tenure, and processing fee
into the calculator and click on the ‘Calculate’ button. You will get a periodical loan repayment
schedule in the form of an amortisation table. The table will consist of your EMIs, outstanding due
after each EMI payment, interest payments, etc. EMI calculation can help you find out how much
your car loan will cost you monthly.
 Processing fee: Banks charge a small percentage of the principal loan amount called the
processing fee to process your car loan. The processing fee will be deducted at the time of
disbursing the loan amount to your bank account. Some banks waiver the processing fee as a
special offer.
 Prepayment/Preclosure: Banks allow borrowers to prepay a part of the car loan after 12
EMI payments have been made. For making this prepayment, you will have to pay a penalty fee
which is a percentage of the prepayment amount called the prepayment fee. You can also choose
to pay the loan amount in full before the end of its loan tenure called preclosure. Banks charge a
preclosure fee which is a percentage of the remaining principal amount that you pay to preclose
the loan. Pre-closing a car loan is not advisable as making timely EMI payments can help to
improve your credit score.
 Foreclosure: As the car acts as a collateral in car loan, if you were to default on your car
loan, your car will be repossessed by the bank and put up for auction to compensate for the
outstanding dues. This procedure is called car loan foreclosure.
 Types of car loans: Banks offer 3 types of car loans - new car loan, used car loan, and loan
against car. As the names suggest, new car loans can be used to purchase a new car whereas a
used car loan can be used to purchase a used or pre-owned car. Loan against car is wherein you
can pledge your old car in order to obtain loan from the bank to purchase a new or second-hand
car.

New Car Loan Vs Used Car Loan

New car loan and used car loan differs not only in purpose of the loan but also in interest rates and
loan tenure. Obviously, the cost of a new car is higher than the cost of a second-hand car. However,
does the same apply to the cost of new and used car loans? Listed below are the differences
between new and used car loans:
 Loan amount: As the price of a new car is higher than the price of a used car, the loan
amount of a new car loan is higher than used car loan. Banks offer new loans up to 85-100% of
the ex-showroom or on-road price of a new car. Banks offer used car loans only up to 70-80% of
the price of a used car.
 Interest rate: As the loan amount for a used car is lesser than a new car, the interest rate for
a used car loan is higher than a new car loan by 5-7%. Furthermore, lenders believe that providing
a new car loan is less risky as a new car has better resale value than a used car.
 Loan tenure: The loan tenure for new car loans range from 1 to 7 years whereas for used
car loans, it is 3 to 5 years. Thus, the loan tenure for a new car loan is longer than a used car
loan. Car loan tenure is determined based on the age of the car and the loan amount.
 Loan EMI payments: EMI payments are smaller for new car loans as they have longer
repayment periods when compared to used car loans. The EMI for a used car loan is higher than
a new car loan as the loan tenure for a used car loan is comparatively smaller.
 Down payment: The down payment for a used car is higher than a new car as lenders are
willing to lend a maximum loan amount of only half the price of a used car.
The insurance cost of a used car is higher than a new car depending on 2 factors - maintenance
cost and safety features. The maintenance cost of a used car is higher than a new car and the safety
features available on a new car is more compared to a used car. Therefore, the insurance premium
is higher for a used car compared to a new car. Similarly, the depreciation of a new car is rapid when
compared to used cars. The depreciation rate of a used car is comparatively lower.
Car loans offer a respite to consumers who want to purchase a car of their choice but don’t have
sufficient funds to do so. When choosing a car loan offer, pick one with the lowest interest rate, a
suitable loan tenure, zero processing fee, and flexible repayment options. Car loans are available for
the purchase of most makes and models of cars in the passenger and commercial vehicle
segments, ranging from hatchbacks and sedans to Sports Utility Vehicles (SUVs) and Multi Utility
Vehicles (MUVs). You can also get tax deductions on car loans for commercial vehicles.

Features of HDFC Car Loan

HDFC Car loans are very popular among car-buyers owing to its deals on car loans. Some key
features of Car loans offered by HDFC Bank include:

 You can avail 100% finance for your new car.

 HDFC Bank Car loan is approved within a really short time span of just 30 minutes.

 Flexible loan repayment tenure of 7 years.

 Competitive and fixed rate of interest.

 Lowest down payments.

 Low Car loan EMIs.

HDFC Bank Car Loan – Eligibility Criteria

Salaried Individuals

 Aged between 21 years and 60 years

 Employed for a minimum of 2 years with at least 1 year with the current employer
 Earn at least Rs.3 lakh p.a.
 Have a telephone/post-paid mobile
 Self-Employed Individuals (Sole Proprietorship)

 Should be in the business of trading, manufacturing, or services

 Aged between 21 years and 65 years
 Should have been in business for at least 2 years.
 Have an annual income of at least Rs.3 lakh

Self-Employed Individuals (Partnership Firms)

 Self-employed partners in the manufacturing, trading or services business

 Should have a turnover of at least Rs.3 lakh p.a.

Self-Employed Individuals (Private Limited Companies)

 Owners of private companies in the manufacturing, trading or services business

 Should have a minimum annual income of Rs.3 lakh

Self-Employed Individuals (Public Limited Companies)

 Directors in public limited firms in the manufacturing, trading or services business

 Have earnings of at least Rs.3 lakh p.a.

Documents Required for HDFC Bank Car Loan

Salaried Applicants

Proof of PAN card, Passport, Driving License,

Identity Aadhaar card, Voter’s ID, etc.

Ration card, Aadhaar Card, Voter’s

ID, Passport, Driving License,
Address
Telephone bill, Electricity bill,
Proof
Telephone bill, Life Insurance Policy,
etc.

Income
Form 16 and latest salary slip
Proof

Bank
Previous 6 months
Statement

Self-Employed Applicants (Sole Proprietorship)

 Salaried Applicants

Proof of PAN card, Passport, Driving License,

Identity Aadhaar card, Voter’s ID, etc.

Ration card, Aadhaar Card, Voter’s

ID, Passport, Driving License,
Address
Telephone bill, Electricity bill,
Proof
Telephone bill, Life Insurance Policy,
etc.

Income
Latest Income Tax Returns (ITR)
Proof

Bank
Previous 6 months
Statement

Self-Employed Applicants (Partnership Firms and

Private Limited Companies)

 Audited Balance Sheet

 Company ITR for the last 2
Income
years
Proof
 Profit & Loss Account for the
previous 2 years

Shop & Establishment Act

Address Certificate, Electricity Bill, Telephone
Proof Bill, Sales Tax Certificate, SSI
Registered Certificate

Bank
Previous 6 months
Statement

Self-Employed Applicants (Public Limited

Companies)

 Audited Balance Sheet

Income
 Self-Employed Applicants (Partnership Firms and
Private Limited Companies)

 Profit & Loss Account for the

Proof
previous 2 years

Shop & Establishment Act

Address Certificate, Electricity Bill, Telephone
Proof Bill, Sales Tax Certificate, SSI
Registered Certificate

Bank
Previous 6 months
Statement

HDFC Bank Car Loan-Fees and Charges

Fees and Charges

Processing Fees Rs.3,000 to Rs.10,000

 Before 1 year
from 7th EMI – 6%
of principal
outstanding
 Within 13
months to 24
months from 1st
Foreclosure Charges EMI – 5% of
principal
outstanding
 After 24
months from 1st
EMI – 3% of
principal
outstanding

Documentation Charges Rs.630 per case

Part-payment Charges  Within 13

months to 24
months from 1st
EMI – 5% on the
 Fees and Charges

part-payment
amount
 After 24
months from 1st
EMI – 3% on the
part-payment
amount

Overdue EMI Interest 2% per month

Cheque Swapping
Rs.500 per instance
Charges

Loan
Rebooking/reschedule Rs.1,000
charges

Duplicate no-due
certificate/no-objection Rs.500 per instance
certificate

Cheque/ECS/SI Return
Rs.550 per instance
Charges

Collateral Charges Rs.475 per case

SBI Car Loan Features

These are the salient features of the car loan given by SBI bank:

 Multiple Options to choose from: State bank Of India offers multiple Car loan options
to choose from for financing the purchase of both new as well as used cars.

 Lowest interest rates: Car loan interest rates by SBI bank are very lucrative and are
charged at the lowest possible rates. State Bank of India car loan interest rates are offered
at both fixed as well as flexible rates. The prevailing SBI Car Loan interest rates range
between 10.40% and 10.45%.

 No advance EMI (advance monthly car loan payments): The State Bank of India car
loan borrowers enjoys flexible options to pay EMIs. Car loans provided by SBI come
 with hassle free options as per which the customer does not have to pay advanced EMI at
the time of taking SBI car loan. Further, they even get the liberty to pay off their EMIs at
any time during the month.

 Repayment tenure: The State Bank of India has designed the car loan product keeping
the convenience of the borrowers in mind. For the same, SBI bank offers the longest car
loan repayment period of 7 years or 84 months.

 Financing the Car’s ‘On-Road’ Price: State Bank of India finances car loan of a
borrower on 85% of On-Road price that includes cost of registration/annual maintenance
contract/total service package/cost of accessories /charges for insurance and extended
warranty.

 Interest is calculated on daily reducing balance: Another added advantage of SBI car

loans is that the customers are charged interest at daily reducing balance.

 No-foreclosure Charges: Certain SBI car loan schemes offer no fore-closure charges;
which mean car loan borrowers do not need to pay extra for pre-paying the borrowed car
loan amount.

 Optional SBI life cover: Along with SBI Car Loan, State Bank of India even offers an
option of choosing SBI life cover by paying a little extra cost.

 Overdraft Facility: With the SBI Car loans, borrowers can even avail overdraft facility
at the State Bank of India.

SBI Car Loan Eligibility

These are the eligibility conditions to avail car loan from SBI bank:

Age
Category Income Criteria Max. Loan Amount
Group

A net annual income of

Age: 21 An employee of Central/State
Rs. 2,50,000 of the 48 times of the net
to 65 government, public/private limited
applicant and/or the co- monthly income
years company
applicant

Age: 21 Professionals, self-employed, Net Profit or Gross 4 times of Net Profit

to 65 businessmen, Taxable income of Rs. or Gross Taxable
years proprietary/partnership firms 4,00,000 income as per the
 filed ITR

A net annual income of

Age: 21
Rs. 4,00,000 of the 4 times of Net annual
to 65 Agriculturist
applicant and/or the co- income
years
applicant

SBI Car Loan Documents Required

These are the required documents to submit to avail the car loan from SBI Bank:

Salaried Self-Employed Agriculturist

Car loan application

Car loan application form Car loan application form
form

Bank statement for last 6 Bank statement for last

Bank statement for last 6 months
months 6 months

ID and Address Proof ID and Address Proof ID and Address Proof

2 passport sized 2 passport sized

2 passport sized photographs
photographs photographs

Income proof: Salary Slip, Income proof: Form 16 Bank accepted cropping pattern and land
 Form 16, and ITR for 2 holding documents and documentary proff
and ITR for 2 years
years of cultivation

SBI Car Loan Interest Rate and Fees* Oct 2018

Interest Rate 9.20% – 9.70%

Processing Fee Rs. 1,000 – Rs. 1,500 + GST

Repayment Tenure Upto 7 years

Financing 90% of ‘on-road’ price

For Government Employees: 40 times of monthly income.

For Professionals: 4 times of gross taxable income.
Maximum Loan Amount
For Businessmen: 4 times of net profit.
For Agriculturalist: 3 times of net annual income.

Car Loan Schemes Provided by SBI

The list of car loan schemes provided by SBI is given below:
 SBI New Car Loan Scheme: This scheme is suitable for those who wish to purchase a new
car for themselves. The repayment tenure is up to 84 months and the applicant is also offered an
optional SBI Life Insurance Cover.
 Certified Pre-owed Car Loan Scheme: This scheme is for those who wish to purchase a
pre-owned car for themselves. The minimum loan that one can avail is Rs.3 lakh and the
maximum loan amount being Rs.10 lakh. The repayment tenure can be either 5 years, or 8 years
minus the age of the vehicle.
 SBI Loyalty Car Loan Scheme: Customers who have availed a home loan from SBI have
the option of availing this scheme and purchase a car of their choice. The repayment tenure under
this scheme is 7 years, and the minimum income criteria the applicant will have to fulfil is Rs.2
lakh.
 SBI Assured Car Loan Scheme: If a customer has opened a fixed deposit account in a
branch of SBI, then he/she can avail this car loan scheme. The repayment tenure ranged between
3 years and 7 years depending on the loan amount. The margin under this scheme is 100% of the
 fixed deposit or the on-road price of the vehicle. The minimum loan amount one can avail is Rs.2
lakh.
 SBI Car Loan Lite Scheme: Businessmen, agriculturists, and self-employed people under
‘Tatkal Tractor Scheme’ who are engaged in business which provides them income but have no
proof to show for the same can apply for this scheme. The maximum loan amount that one can
avail under this scheme is Rs.4 lakh, and the maximum repayment tenure is 5 years.