The necessity of a car in today’s age is undeniable. Owning a car can not only boost your independence but has multiple other practical benefits.
Moreover, in this post-pandemic era, the possibility of public travel has its many downsides. Under such circumstances, having one’s own car becomes of paramount importance when needed to run an urgent errand, take a much-needed road trip, or travel to work.
Car loans available at affordable interest rates can help you realize this possibility without burning a hole in your pocket. Read on to find out more about car loans, their benefits, as well as details of the top 5 private banks offering the lowest rates on car loans.
What is a car loan?
A car loan can be availed to finance your car purchase or automobile, whether old or new. It is a secured loan where the car you intend to buy stands as collateral against the loan.
Effectively, the car remains in possession of the lender till the loan repayment has been made in full by the borrower. In the event that you’re unable to repay the loan, the car can be rightfully seized by the lender, who can further sell it off to generate the necessary loan amount.
Other relevant features of a car loan are:
- Usually, the loan amount is restricted to 80-90% of the on-road cost of the price, while the borrower is required to do a down payment on the remaining amount. Some lenders do offer 100% financing contingent on some conditions. If you purchase a car from the manufacturer that has a tie-up with the bank, you are likely also to receive other offers.
- The loan tenure usually ranges from 12 months to 7 years.
- A down payment, usually 10-20% of the on-road cost of the car, needs to be fulfilled by the borrower.
- The repayment scheme is through the usual Equated Monthly Installments (EMI).
- The loan amount and interest rate will vary depending on the credit score and income of the applicant. Different banks and NBFCs offer different loan terms, but as a general rule, the loan amount that can be availed is usually up to 3 times the borrower’s income.
What are the benefits of a car loan?
Car loans are beneficial loans with flexible terms and ample opportunities:
Lower interest rates
Being secured in nature, car loans are subject to lower interest rates than unsecured loans and most secured loans, such as personal loans, home loans, etc.
The processing of car loans is significantly fast with minimal documentation, which allows quick loan disbursal.
With tenure from 1 year to up to 7 years, you can choose a term suitable to your needs and financial commitments.
It is possible to acquire high financing on the car through a car loan, meaning that you will need to make only a minimal down payment. However, even when 100% financing is available, you might consider making a downpayment to the best of your ability. This ensures that you end up paying less cumulative interest costs.
No additional collateral
The car itself will act as the only security against which you may take the loan. On the full repayment of the loan amount, you will be able to possess the car. Therefore, there is no need for additional collateral.
With most car loans, you have the option of prepayment before the end of the tenure. Some companies allow the provision of prepayment after you have completed a certain minimum repayment through EMI. Some may levy foreclosure charges, while others might allow you to prepay at any point in the loan repayment tenure.
What are the top 5 private banks offering the lowest rates?
You will find an ample number of choices in the market to avail a car loan. There is no dearth of banks and NBFCs offering their models of car loans. But purchasing a car on loan is a big investment, and any decision along that line should only be taken after sufficient research and information have been gathered. This will enable you to choose a loan plan and car model suited to your lifestyle and overall capacity to repay the loan comfortably. Here we bring to you the top 5 private banks offering the lowest rates on car loans that you can check out:
- IDBI bank
- ICICI bank
- Karur Vysya bank
- HDFC bank
- Dhanlaxmi bank
Interest rate: 7.50%
- Helps secure maximum funding for the car amount with minimal down payment expenditure on your end.
- Loan available on a wide range of automobiles, cars, SUVs, and high-end bikes.
- Tie up with multiple dealers and manufacturers who will jointly help secure the best deals on your car loan.
- No-penalty foreclosure is permitted within 6 months of loan disbursement. However, a minimum of 1% on the principal outstanding amount will be charged upon foreclosure or part-payment within 6 months from the disbursement date.
Interest rate: 7.90%
- Option for smart EMI
- Pre-owned car loan options are available at affordable and attractive rates of interest.
- Existing loan customers can avail of additional top-up loans of ICICI bank through a fast-paced process involving minimum documentation and quick disbursement.
- Car loan EMI calculators instantly calculate your monthly EMI based on the information provided.
- Exclusive car finder option that helps you search for cars, compare the features of various cars and avail the best option out of them.
Karur Vysya Bank
Interest rate: 7.90%
- Loan prospects on both new cars as well as used cars
- No prepayment charges are applicable no matter at what point in the loan term the borrower decides to perform prepayment.
- For established customers of the bank or individuals with prior deposits in the bank, the probability of getting a car loan faster and on lower interest is higher.
- Completely online process of loan application and disbursement from top to bottom.
Interest rate: 7.95%
- ZipDrive Instant car loan options exclusively for HDFC users will allow the loan amount to be disbursed to the manufacturer instantly through net banking, thus making the process entirely digital and paperless.
- Option of top-up loans without additional documentation.
- Flexible repayment schemes, step up, and balloon EMI repayment options are available.
- No provision for foreclosure within six months of receiving the loan. 6% of the principal outstanding amount will be charged as foreclosure fees if applied for preclosure within a year of the 7th EMI. Within 13-14 months of the first EMI, 5% of the outstanding amount is deducted, while 3% is deducted for foreclosure after 24 months of the first EMI.
Interest rate: 8.10%
- Financing up to 85% of the on-road cost and up to 95% of the ex-showroom price.
- Up to five years repayment tenure option is available.
- Loans are available on new cars and used cars with attractive rates available on both.
- Financial-based product.
- Documentation required is minimal, the overall loan application process is digital and hassle-free.
Besides these, a processing fee is also exacted in the loan plan, though banks often excuse this fee for their existing customers. Before settling on an option, be sure to compare the rates, loan plans, and the final EMI of various banks to ultimately acquire a loan most commensurate with your financial and vehicle needs.
However, the lowest interest rates offered by a bank or NBFC is ultimately contingent on several factors, such as the loan amount, the borrower’s credit score, their income, and such other terms and conditions, all of which together ultimately decide the rate of interest in a particular loan plan.