A car loan is a one-time investment received by a bank or other financial entity to finance a car. The interest rate on a car loan varies by bank and is determined by your monthly salary, occupation, current EMI, credit score, and other factors. The interest rate that the bank will owe you on your loan must be the first and only concern you should consider before getting a car loan. There are various banks that have low-interest car loans. Borrowers who already have a relationship with a bank usually get loans at cheaper interest rates. So, if you're just buying a car because you want to stop using public transit during COVID-19, find out the best car loan rates here.
6 Things To Consider Before Taking A Car Loan
If you want to get a car loan, you must take considerable time reviewing some facts and planning a series of concerns before picking a car model and visiting a dealer to drive your favourite car. Having wise financial considerations is still a smart thing. When you study to find the best car loan alternative with the best rate and lowest processing charge, it makes you a smart investor. Let's take a look at the six things you must care about before taking out a car loan.
1. It is always a smart idea to spend about 20% of the car's price out of pocket to get the remainder financed by the bank. Many banks, on the other hand, provide loans up to 100% of the car's ex-showroom value. Investors must strive to stick to the 20% statute, which specifies that they must not take a loan that would require more than 20% that may place a burden on their personal finance by increasing their monthly EMI payment.
2. Particularly even if the interest rate is low some lending institutions owe investors with plenty of hidden costs such as processing, paperwork, prepayment, foreclosure, late payment charges and so on. These charges make the net price charged for the vehicle higher. Using the car loan EMI calculator, the applicant can measure the cumulative amount he will have to pay over the duration. To get the best interest rate and save money on your overall car loan, you must weigh a number of considerations such as the principal amount and tenure for the loan.
3. Investors must be mindful that their car loan will be with them for a long time, and they will need to pay an EMI on a regular basis for several years. The key is to plan ahead financially. In order to maintain the tenure on the low end and gain on interest, applicants must not commit to the higher EMI amount. Picking the longest term since this would raise the amount of interest due on the loan must also be avoided by investors.
4. An investor will pay a range of charges and fees on a car loan in addition to the interest. Always check about the charges and fees involved with the loan while applying for the loan. Loan processing fees, documentation fees, credit report fees, registration card collection fees, stamp duty, foreclosure fees, late payment fees, loan cancellation fees, swap and bounce fees are some of the basic charges that investors must take into their consideration. Hence, it is suggested that before considering a lender, compare the additional fees and costs of different banks.
5. When an investor tries to pay off his loans before the term expires, several banks impose prepayment fees, foreclosure fees, and other fees. In such cases, you must always prefer a bank that costs you the least amount of charges. Banks who charge reduced to no foreclosure fees should be granted priority.
6. An individual must have a range of documents to indicate to the bank that he or she has the capital backing to repay the loan. Despite the fact that the applicant's credit score reveals his financial health, banks need further confirmation and proof from the investor that he is financially stable enough to pay off his loans without strain. An individual who has all the KYC documents on hand while applying for a loan will have his loan accepted in a matter of minutes.
Eligibility criteria to apply for a car loan
Different banks may have different eligibility criteria for car loans. Below are some of the most important criteria:
- The applicant must fall between the age limit of 18 to 75 years
- He or she should have a minimum income of Rs 20,000
- He or she must have been employed with the same employer for at least one year.
- He or she must be a salaried or self-employed individual
Documents required to apply for a car loan
You'll need to provide some paperwork to prove your eligibility. Though each lender will have its own set of documents, the following are the basic ones:
- Identity proof: PAN, Passport, Aadhaar, Driving license, Voter ID Card
- Residence proof: Passport. Aadhaar, Utility bills, Ration Card
- Income Proof: Salary slips of the last 3 months, Form 16, Latest IT Returns, Bank statement for the last 6 months
Taxation on car loans
If you took out a car loan to buy an electric vehicle (EV), you will now get an Rs.1.5 lakh tax relief on the interest you pay. Finance Minister Nirmala Sitharaman declared this in the most recent Union Budget (2019-20), and it is part of the government's initiatives to enhance the implementation of environmentally sustainable automation. If you buy an electric car, you will be liable for a gain of about Rs.2.5 lakh over the duration of the loan. In comparison, the government has reduced the tax limit on electric cars from 12 per cent to 5%. Cars are considered expensive goods, but individuals who take out a vehicle or auto loan to buy one are not eligible for a tax exemption. Self-employed persons who take out car loans for commercial vehicles are liable for a tax exemption under section 80C of the IT act.
Car Loan Interest Rates
With car loan interest rates as low as 7.1 per cent, now is a perfect opportunity to purchase a car if you've been thinking about it, particularly with the latest low-interest rates. Public sector banks in India are now providing the cheapest rates on car loans. Over several months, state-owned Punjab & Sind Bank has provided the lowest interest rates, at 7.1 per cent, led by the Central Bank of India at 7.25 per cent for a loan amount of Rs 10 lakhs with a 7-year term. Banks are classified in increasing order by interest rate, the bank with the cheapest rate on a car loan mentioned at the top and the bank with the highest interest rate at the end. The table displays the lowest interest rate given by banks on a loan of Rs 10 lakh. The interest rate shown in the table is an estimate that can differ based on the terms and conditions of the banks.
|Sr No.||Banks||ROI in % per annum|
|1||Punjab & Sind Bank||7.1|
|2||Central Bank of India||7.25|
|4||Punjab National Bank||7.3|
|5||Bank of Baroda||7.35|
|6||Union Bank of India||7.4|
|7||Bank of India||7.45|
|8||Bank of Maharashtra||7.5|
|10||Indian Overseas Bank||7.55|