Car Loan Overview

Any finance availed for the purchase of buying a brand new or a used car is defined as Car Loan. Car loan, also known as Vehicle Loan or Car Finance is one the most complex loan product in India because the car dealers tend to mix together various cash discounts offered by the manufacturers or car financiers in the interest rate offered to the buyer. Due to such things, the chances are that the borrower may not get the best deal on car loan.

The interest rate offered by the lenders on carloans in India may actually vary from the one advertised either in the newspaper or any other media. Unlike other loan products, the interest rate for auto loan varies highly depending on various factors like credit score of the borrower, make and the age of the car and quantum of car loan sought by the borrower.

The credit history of a person gives brief information about the borrowers?? past history of repayments on credit cards or any other loan. A past default or delay in payment may point to a probable risk to the lender, thereby increasing the rate of interest offered to borrower on car loan.

Since car loans based on the cars have different interest rates, it is advisable to decide on the model and make of a car. Loans for Used car or second hand car carry a higher rate of interest as compared to new car loans. However there are some PSU banks, which offers same rate of interest for the used car loans as well as the new car loans. . The quantum of any auto loan can also play a vital role in rate of interest one may get from the car financer.

The lenders usually finance 80-100 per cent of the ex-showroom cost (which excludes the octroi or local taxes levied and insurance in different states) as a loan for new car. The car loan has a maximum tenure of 7 years for a new car which one has to pay through Equated Monthly Installment (EMI). The maximum tenure for used car loan is 7 years as reduced by the age of the car.

The borrower should decide on the quantum of loan required before he finalizes on car loan lender. The quantum of loan will depend on the make of the car, the amount of loan lender is willing to finance and the car loan tenure. Once the amount of funding required is finalized for the vehicle loan, borrower should compare the best deals available from various lenders. The borrower should freeze on the lowest EMI offered for the same loan amount and same tenure. Once that is done, you can negotiate with different lenders for the best deal.

The borrower while selecting the person to provide the car finance should also consider the processing fee for processing his car loan application. The borrower should also clearly understand any prepayment penalty on such car loan, which ranges between 3-5% of the outstanding loan amount. Please note that the processing fee is negotiable and one should negotiate it hard as some of the car finance providers even agree to waive this.

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