Car Loan in 2024: An Ultimate Guide For Car Loans in India!!!

Last updated on January 5th, 2024 at 10:45 am

Updated On: 04th, January 2024

Just like home, buying a dream vehicle is on everyone’s bucket list. Isn’t it? As it requires lakh of investment to buy a car, people in India prefers to avail a car loan to minimize the monthly expenditure and spread it throughout the years.

The procedure to get an auto loan is quite lengthy and detailed and having a clear view about the process before you contact any lender for the car loan is always a better idea. So, if you are thinking of purchasing a vehicle in 2022 , then here we have brought all the information related to car loans in India under one roof. Know the effective interest rates, loan amounts, loan tenure, and other relevant details before you get any car loan sanctioned in your name.

Features of Car Loan

Understanding the functioning of a car loan will help you take a wise and well-informed decision regarding the right car loan. Find below the best features of a car loan:

1. Loan amount: The threshold limit for a car loan amount is 80-100% of the ex-showroom/on-road price of the car. When you pay a maximum down payment for your car, your car loan amount is less.

2. Interest rate: A person who takes a car loan has to pay an interest on the principal amount of loan on a monthly basis for specified loan tenure. The rate of interest on car loan is different for every bank.

3. Loan tenure: A car loan can be procured for loan tenure ranging from 1 to 7 years. A short-term car loan has a higher EMI and has to be repaid in a short period of time. A car loan for a long tenure has low EMIs for a long time.

4. Car loan EMI: Car loan is always repaid to the lenders in Equated Monthly Installments (EMIs). The EMIs can be calculated using an online car loan EMI calculator available on the website of the car loan lenders. Enter loan amount, rate of interest, loan tenure, and processing fees to get instant results.

5. Processing fee: This charge is a small percentage of the loan amount charged by the bank to process your car loan that will be deducted when the car loan is disbursed to your bank account.

6. Type of car loan: Banks offer three kinds of car loans such as new car loan, loan against car, and used car loan.

7. Prepayment: Car loan lenders allow borrowers to repay the car loan after the successful payments of 12 monthly installments. In such a case, the borrower has to make the payment of a penalty fee which is also called a prepayment fee.

8. Preclosure: When the borrower decides to pay the full car loan amount before the end of the loan tenure is called a preclosure. The banks or third party lenders charge a preclosure fee on the remaining principal amount to preclose the loan.

9. Foreclosure: When the borrower makes a default in the payment of the car loan, the bank will auction the car that is also collateral to compensate the outstanding loan amount. This is known as a car loan foreclosure.

Advantages of Car Loan

Taking a car loan can be expensive compared to buying a car with full down payment. But with the concept of loans on cars undergoing a massive positive change, you can seek the following features and advantages that can make this procedure a simpler and hassle-free one for you. Car loan lenders now offer highly customized and specialized services to their customers at affordable rates.

• A car loan help you buy a four-wheeler even if you lack sufficient funds.
• Some car loan lender finance 100% of the amount of your car.
• A majority of the car loans lenders help you buy your car with zero down payment.
• There are banks that even offer car loan facility in the value of crore if you want to buy a luxury car.
• Car loan is offered as a secured loan with your car being the collateral or security for the loan.
• Getting a car loan is comparatively simple than other loans like home loan. People with less credit scored can even procure a car loan.
• Most of the car loan lenders or banks charge a fixed rate of interest. It means that you have to pay a fixed amount towards the amount of your loan on a monthly basis.
• Most of the lenders consider credit score as the basis to offer car loans and a person with higher credit score will attract a cheaper loan.
• Car loans can be taken on pre-owned cars as well.

Type of Car Loans India

There are three kinds of car loans offered by banks and third party lenders in India:

1. New car loan: A new car loan is procured to purchase a new car from the showroom. The usual interest rates charged on new car loans ranges from 9-14% per annum for loan tenure of 1-7 years. The majority of the banks and NBFCs finance 80-90% of the ex-showroom or on-road price of the car loan amount.

2. Used car loan: Banks and NBFCs provide used car loans up to a limit of 80-90% of the cost of the used car at a rate of interest of 12-18% per annum for loan tenure of 1-5 years. This car loan is usually taken to buy used cars that are less than five years old and not more than 10 years at the time of maturity of the car loan.

3. Loan against car: This type of a car loan is procured when a person pledges his or her old car as a security against the loan to purchase a new car. Most of the banks offer up to Rs. 10 lakh or 100% of the car value as a car loan at a rate of interest of 14-15% per annum up to loan tenure of 3 years.

New car vs. used car loan

Both these car loans vary in terms of the interest rates, purpose of loan, and loan tenure.

• Loan amount: The loan amount procured on a new car is much higher than the loan amount for a used car loan due to the changes in the price values. The amount of loan sanctioned for new cars is 85-100% of the on-road or ex-showroom price. In case of used car loans, the bank sanctions only 70-80% of the cost of the used car.
• Rate of interest: The rate of interest charged on the loan amount of a new car is generally lower compared to the interest rate for a used car loan as loan on a new car is less risky as compared to a used car. The difference between the interest rates in both the cases is 5-7%.

• Loan tenure: The tenure of car loan is determined on the basis of the car age and the amount of loan. For a new car, it is up to 7 years and up to 5 years for a used car loan. The new car loan tenure is much longer than of a used car loan.

• EMI payments: The monthly installments for a new car loan are lower due to long repayment tenure. The EMIs for used car loans are higher as the loan tenure is shorter.

• Down payment: The down payment for a new car is normally less as the lenders are willing to finance the maximum loan amount. In case of used cars, the down payment is higher as the loan amount sanctioned by the banks and financial institutions is usually less.

Types of Car Loan Interest Rates: Fixed and Floating

The interest rates on car loan are classified into two types – fixed and floating. Every bank or third party lender charge a different type of rate of interest on car loans according to their rules and regulations. But, a fixed rate of interest is much better than a floating rate of interest as it iss easy to calculate EMIs based on that interest rate.

Fixed interest rates: A fixed rate of interest on a car loan remains unchanged throughout the tenure of the loan. This type of interest rate attracts people who want their loan interest rates to remain the same and not fluctuating. Fixed interest rate prevents the risks that come along floating or variable rates of interest. Such interest rate is calculated on a car loan based on he amount of loan, loan repayment period, and the interest rate.

Floating interest rates: Floating rates of interest are comparatively less than fixed rate of interest. Such interest rates are subject to change when there is a fluctuation in the MCLR or the base rate. When such rates go up, the amount of car loan EMIs will increase. Floating or variable interest rates depend on the kind of security or loan.

The major differences between these two types of interest rates are as follows:

Fixed interest rate	Fluctuating interest rate
The rate of interest is generally higher.	The rate of interest is usually lower.
Lower risk is involved as the interest rates are fixed.	Higher risk is involved as interest rates are fluctuating.
EMIs are usually constant and unchanged.	EMIs are subject to change based on MCLR changes
This rate of interest provides security to the borrowers.	This rate of interest provides savings to the borrowers.
It is easy to plan your budget with such interest rates.	It is difficult to plan your budget as the interest rates keeps on changing.
This rate of interest is ideal for short loan tenure, i.e. three to ten years.	This rate of interest is suitable for long loan tenure, i.e. 20 to 30 years.

Factors Affecting Car Loan Interest Rates

There are several factors that influence the interest rates charged on car loans such as:

Credit score: Credit score of a person decides how much car loan he could get from the bank or financial institutions. A credit score above 750 attracts low rate of interest on a car loan. A good credit scores indicates your creditworthiness and lender will have guarantee that you will repay the loan on time. So, if you wish to procure a car loan in the near future, try to maintain a good credit score.

Repayment period: The repayment period or the loan tenure will affect the rate of interest levied on a car loan. The longer repayment period will attract higher rate of interest and cheaper EMIs. Whereas when the repayment period is shorter, the EMIs will be higher and the interest rate will be lower.

Loan Amount: The amount of car loan will have a direct impact on the interest rates. The rate of interest is generally lower on a larger loan amount and higher on a smaller loan amount.

Relationship with the lender: The banks and third parties with whom you have a good transaction history with will offer car loan at a less interest rates. Check the rate of interest on car loans before you approach any other lenders.

Income: If your income is good, you may get a lower rate of interest on your car loan as you will have a greater ability to make the repayment of the loan.

How To Get Quick Car Loan Approval?

When you are planning to take a car loan to buy a new or a used car, you should always go for a pre-approved loan. Follow these simple steps to get your car loan approved faster:

1. Check your credit score

Make sure that you have a credit score of 750 or above to attract a lower interest rate on your car loan. There are higher chances of the rejection of your loan application if you have defaults or discrepancies in your credit report.

2. Timely payment of bills

You should have minimum monthly pre-tax income and a good debt-to-income ratio (DTI) to avail a car loan. The DTI can be improved by clearing your outstanding credit card debts. Try to make timely payment of your bills at least six months before the loan application. It gives a guarantee to the lender that you will pay your EMIs on time.

3. Search for Car Loan Options

You can find several car loan alternatives in the market to buy your favorite car. Have a look at the prevailing interest rates on car loans of different banks and financial institutions that is best for you.

4. Borrow a minimum loan amount

Try to make the down payment of a maximum amount as this will reduce the loan amount and control your expenditure on the car loan. When a person borrows a lesser amount from the lenders towards a car loan, the loan amount can be repaid faster. A lesser loan amount means shorter loan tenure and smaller EMIs.

5. Try to stay in your budget

The ability of pay off the car loan majorly affects your loan approval. Always go for a car loan scheme that you can afford and that is within your pocket size. When you already have a liability to repay other loans, then you should make sure that you are capable of repaying the car loan as well.

6. Read carefully the terms of the loan

A car loan with long loan tenure and smaller EMIs is not always perfect for you. So, before you apply for a car loan with any bank or finance company, try to pick a plan that has shorter loan tenure and lower interest rates.

7. Take a car insurance with full protection

Every bank or NBFC do not want to incur any losses while sanctioning loans to the borrowers. So, several loan lenders prefer full coverage insurance on your vehicle before offering any car loan. It helps them to recover the debts in case the borrower turns a defaulter.

Bank-Wise Car Loan Interest Rates 2024

Banks	Car loan interest rates 2024	Processing fees	Loan amount
SBI (Fixed rate of interest)	CIBIL Score > 757 – 7.25% p.a. CIBIL Score>720>756 – 7.5% p.a. CIBIL Score>688>721 – 7.75% p.a. 7.85% p.a. in other cases. WAIVER: 0.2% waiver of rates of interest on car loans in case of EV cars. 0.5% for current home loan borrowers. PREMIUM: 0.1% is charged when loan tenure is extended by 6 and 7 years.	Applicable	85% of the on-road price
Punjab National Bank (Floating rates of interest)	WOMEN & CORPORATE ACCOUNT HOLDERS 6.75% p.a. for EV cars 6.85% p.a. for petrol & diesel cars OTHER PROFILES CIBIL>750 – 6.85% p.a. CIBIL>=700>750 – 7.15% p.a. CIBIL <700 – 7.5% p.a. EV cars – 10 bps rebate	100% PF Fees Waiver till March 2022	85% of the on-road price
Punjab & Sind Bank	CIBIL Score > 768 – 7% p.a. CIBIL Score>752>768 – 7.1% p.a. CIBIL Score>732>752 – 7.3% p.a. CIBIL score<690 – 7.55% p.a.	0.25% of Loan Amount + GST
Canara Bank	7.3% to 7.45% for women borrower 7.35% to 7.5% for men borrower based on CIBIL score	0.25% of Loan Amount+ GST subject to maximum threshold of Rs 5,000	90% of the on-road price
Bank of Baroda (Floating rate)	7% p.a. for CIBIL>800. Premium of 0.05% charged on rate of interest if loan risk insurance cover is not taken.	Rs. 1,770 + GST + Rs. 1,000 as account opening Charge	90% of the on-road price
Union Bank of India (Floating rate)	CIBIL score > 700 – 7.4% p.a. Other cases – 7.5% p.a.	No Processing Fees	85% of the on-road price
UCO Bank	CIBIL > 700 – 7.25% p.a. for new customers	1% of Loan Amount subject to maximum Rs 1,500
IDBI Bank (Floating rate)	7.35% p.a.(CIBIL > 800) 7.45% p.a. (CIBIL > 775 but till 800) 7.55% p.a. (CIBIL > 741 but till 775) 7.95% p.a. (CIBIL > 700 but till 740)	Rs 2,500 + GST	90% of the ex-showroom price
Central Bank of India (Floating rate)	7.25% p.a. (CIBIL > 725) 7.35% p.a. (CIBIL > 700 but up to 725) 7.45% p.a. (CIBIL > 675 but less than 701)	100% Processing Fee Waiver	90% of the on-road price
Kotak Mahindra Bank	Starting at 7.25% p.a. Interest rate is calculated on the basis of Car Model, Credit Profile. Fixed Rate Scheme	Processing fees as per bank’s terms and conditions	90% of the ex-showroom price
Karnataka Bank	Starting at 8.2% p.a. based on the CIBIL Score)	0.5% of Loan Amount+ GST subject to minimum Rs 2,500 and maximum Rs 10,000
Private banks like HDFC, ICICI, and Axis Bank (Customers with Pre-approved loan)	7.5% to 7.85% p.a.	Rs 2,499 to Rs 3,999 as reduced processing fees	100% of the ex-showroom price

Best Car Loan Products in 2024

Banks	Key car loan products	Features
HDFC Bank	Luxury car loans	7.95% p.a. of rate of interest. The maximum limit for loan amount is Rs. 3 crore. Loan tenure is maximum 84 months. Loan amount is 100% of the on-road price for selected models.
Axis Bank	Small loans	7.45% p.a. is the starting interest rate. The maximum loan amount is 100% of the on-road price. Loan tenure is 96 months. You can procure a loan of Rs. 1 lakh.
SBI	Agriculturists and professionals with no income proof	The rate of interest starts at 7.20% p.a. The loan tenure is maximum 84 months. The car finance is available up to 90% of the on-road price.
Free Personal Accident Insurance	Federal Bank	Rate of interest starts from 8.5% p.a. No documentations required. Maximum loan tenure is 84 months. 100% of the ex-showroom price can be financed.
Lower rates of interest on new and used car loans	Canara Bank	Interest rates on car loans start at 7.30% p.a. Maximum loan tenure is 84 months. The car finance is available up to 90% of the on-road price. Low interest rates are available only to women.

Car Loan Repayment Scheme

The EMIs of the car loan can be repaid using one of the following repayment schemes:

1. EMI in arrears scheme: Under this method, the EMIs (principal amount and interest rate) are paid at or after the month-end.

2. Advance EMI scheme: Under this method, the EMI payment for car loan is made at the starting of the month.

3. Zero interest scheme: Also known as the 0% finance scheme, a zero interest scheme is a subsidy scheme where the rate of interest is paid to the bank upfront.

Eligibility Criteria for Car Loan

The eligibility criteria for car loan changes from bank to bank. But the most common one are:

• The age of the borrower should be between 18-75 years.
• The minimum net monthly income should be Rs. 20,000.
• The borrower should be self-employed or salaried in a private company or a government undertaking.

Documents Required For Car Loans

There are certain documents that are essential to prove your eligibility to avail car loans.

1. ID proof such as passport, Aadhaar card, voter ID, PAN card, and driving license.
2. Address proof like passport, Aadhaar card, driving license, utility bills, and ration card.
3. Income proof such as salary slips, Form 16, bank statements of last 6 months, and latest income tax returns.

Apart from the above documents, there may be additional documents required by your lender. Make sure you prepare a checklist for the same to avoid any future discrepancies.

The Ultimate Checklist For Applying Car Loan

S. No.	Steps	Requirement	Inference
1	Apply for a car loan	Compare car loan offers of every lender.	Always go for a car loan scheme that offers larger loan amount and lower interest rates.
2	Submission of income proof	Bank Statement of last 6 months Pay-Slips of last 3 months IT- Returns of last 2 years	Lender wants to ensure that you are capable to repay the loan.
3	Submission of ID and address proof	PAN Card Voter’s ID Aadhaar Card Passport	Lender wants to know your nationality, identity, and permanent address.
4	Credit History	PAN Card	Lender wants to verify your creditworthiness and ensure that you are capable of repaying the car loan.
5	Information about car	Sales receipts from the showroom.	Lender should confirm that the deal was made according to the proper rules and regulation.
6	Proof of Insurance and Driving License	Copies of the car insurance and driving license	Lender wants to ensure that you have followed all protocols related to the car purchase.

How to Choose Right Car Loan?

Follow the below do’s and don’ts to ensure that you car taken the best car loan in 2024:

The do’s to take the right loan:

• Always compare the car loan schemes of different banks and other lenders and choose the best one.
• Choose a car loan with the best rate of interest and loan amount.
• Always decide that car first that you want to buy before applying for the car loan.
• Be cautious of the hidden charges like fees relating to your car loan.
• Make sure that you avail special offers on your car loan.
• Verify the insurance premium for your car as it is a recurring cost.

The don’ts to consider while taking a car loan:

• Never apply for a car loan that exceeds your eligibility as a borrower as your loan application will get rejected.
• Never apply for a car loan with multiple banks as it reduces your CIBIL score.
• In case your loan application gets rejected, stop applying for it at different banks.
• Never rely on car loans that dealers offer as they do not offer the best rates of interest.
• Never select a car with high maintenance cost as it will increase your expenditure.