Interest rates on car loans are crucial to determine if you can afford to buy a new one. Public and private sector banks provide loans for new as well as used cars upon a certain rate of interest (ROI) on equated monthly installment (EMI), either after down payment or full financing, to salaried and self-employed individuals both.
One’s credit score plays a vital role in getting an attractive ROI on the borrowed sum, which means that higher your credit score lesser the ROI and vice-versa, and is calculated on the basis of tenure, loan amount as well as one’s relationship with the bank. Most banks also allow its existing customers to keep collateral security, as well as loans against cars, as a condition for obtaining a loan.
Forbes Advisor India has put together a list of new car loan schemes and the interest rate currently offered by public and private sector banks of India to help you better understand the types of plan that would suit your personal finance needs.
Car Loan Interest Rates in November 2023
The interest rates on new car loans provided to general citized by major Indian banks are accurate as on Oct. 31, 2022. While we update this information regularly, the rate of interest and loan details may have changed since the page was last updated.
Related: Best Car Loans In India
How do Banks Calculate Interest Rates on Car Loans?
Interest rates for car loans provided by public and private sector banks in India might be either fixed or floating. A fixed rate of interest on loans is fixed for the overall duration of the loan. With a floating rate, the ROI on your easy equated monthly installment (EMI) is calculated as per the “base lending rate” plus the standard premium rate, and lender’s repo-linked loan rate (RLLR) or marginal cost of fund-based lending rate (MCLR).
The ROI on car loans for every bank changes as per the RBI’s change in repo rate (the rate at which the apex bank lends money to public and private banks). In the floating rate, the change is, however, reflected after the “reset period” when the interest rate on your EMI is subjected to revisions. Nonetheless, banks usually provide the breakdown of EMI against the outstanding amount in your car loan sanction letter.
For a borrower applying for a new car loan of INR 10 lakh with an RoI of 10.5% for a tenure up to 10 years, the formula of simple interest will be used to calculate the interest on that sum to calculate your monthly EMI.
The procedure is as follows:
E = P X R X (1+R)N/(1+R)N–1)
Where, E = EMI; P = Principal amount; R = Rate of interest; N = Tenure in months.
EMI = INR 10,00,000 X 0.00875 X (1 + 0.00875)120 / (1 + 0.00875)120 – 1) = INR 13,493.
What Should You Know about Car Loans: Features and Benefits
Eligibility Criteria: The minimum age of the borrower should be 21 to 70 years (60 in some banks). The annual income of a salaried borrower should be minimum INR 3 lakh per annum, while self-employed borrowers should be earning INR 2.5 lakh annually.
Processing fee: Depending on banks, processing fee ranges can be nil and up to 4%. Remember, banks also charge other fees like documentation charge, etc.
Foreclosure and part-payment: If a borrower wishes to close the loan before the tenor, an additional RoI is levied on the outstanding principal amount.
On-road Funding: Depending on your relationship with the bank, your credit score and past credit payment history, banks may lend 70% to 95% of the value of the car including RTO and insurance fees. The remaining balance has to be paid by the borrowers. Some banks also offer 100% financing of the car.
How to apply: Banks have made it much easier for borrowers to apply for a car loan online. Borrowers can get quotations of the price of a car selected from the list of brands and models on the bank’s website. Here’s the application process for car loans provided by major Indian banks. However, if you have already selected the car, you may have to call the bank’s toll-free number or visit the bank’s nearest branch to apply for a car loan by giving out details of the vehicle and the car dealer.
Remember to carry relevant documents needed for proof of identity, address, and income. In case of old cars, additional papers are asked by banks to evaluate maintenance records, registration certificate, car insurance, transfer of no claim bonus, etc.
Frequently Asked Questions (FAQs)
What is a pre-owned car loan?
A pre-owned car loan involves making monthly EMI payments to purchase used cars and are priced lower than new ones.
