Car Loans in India

If you have been dreaming of owning you own car and have been wondering how to pump in the money, car loans come to your rescue - pay a small part of the total cost of the car upfront and own a car of your own. Applying for and getting a car loan sanctioned is reasonably easy these days. The number of banks and institutions offering car loans in India is on the upswing. Car finance companies offer up to 90% of the cost of the car if it is new and 85% of the cost of the car if it is a used car. This again is decided based on the repayment period and the model of the car.

Growing options for cars and financiers have encouraged the average Indian to aspire for a car of his own. The Indian remuneration market has seen an uptrend in the past few years; the salaried middle class are more than willing to upgrade their living standards. This has increased the number of car buyers in the recent times. Attractive offers and schemes offered by the organized and institutional auto finance companies are tempting enough and often confusing too! This simple guide to car loans will help you decide on one that is most suitable for you.

Types of Car Loans

Hire purchase scheme: Hire purchase scheme is generally offered by non-banking finance companies (NBFC). In this type of agreement the car is let on hire, the hirer has an option of purchasing the car if he wants in concurrence to the terms of agreement. The NBFC charges the hirer an amount called the option money. Once the option money is paid, the hirer can take the car. This amount can be anything from one rupee to any amount the hirer can afford. NBFC’s are not allowed to lend loans (loans are purely bank’s privilege) thus they lend money through this method. This system of lending is similar to loans.

Margin money scheme: The customer has to pay an amount of at least 10% of the total loan amount as margin money along with the first installment. The balance amount can be paid through post-dated cheques drawn in favor of the lender. Post-dated cheques have to match the remaining number of EMI’s (Equated Monthly Installment). For people choosing a repayment period of 5-7 years, this scheme will suit them the best as the EMI per month is the lowest when compared to other schemes.

Security deposit scheme: In this scheme the customer has to pay a certain amount as security deposit against the amount granted as loan. After the customer repays the full amount of loan, the security deposit will be refunded to the customer. The security deposit will earn you interest but is much lower than the interest charged for your loan amount. The EMI is much more when compared to other car loan schemes. After the loan tenure, 10% to 30% of the security deposit is returned to the customer.

Lease financing purchase: An agreement called lease is signed between the lender (lessor) i.e. owner of the asset and the user (lessee) to hire the asset. The ownership remains with the lessor while the asset is used by the lessee for a contracted period of time. A periodical rent has to be paid to the lessor by the lessee for this particular period of time. Lease agreements are most commonly signed between NBFC’s and corporate’s as corporate’s save a huge amount on tax.

Advanced equated monthly installment scheme: 100% loan amount is offered through this scheme. A minimum of five EMI’s has to be paid initially, the balance loan amount for the remaining period has to be paid through post-dated cheques. The only drawback of this scheme is that the customer has to pay at least five to nine installments right away. Apart from this the EMI might be on the higher side as the interest is calculated for the entire loan amount.

Applicant can choose a car loan that will suit him the best, repayment is generally made through post-dated cheques while few institutions accept direct debit mandates.

Various banks offering car loans in India

HDFC Bank, ICICI Bank, SBI and Citibank are the prominent players in the Indian auto loan sector.

Loan amount: Different auto loan agencies have their criteria for calculating loan amounts that can be disbursed to individuals. For new cars maximum of 90% based on the invoice value, minimum loan amount is Rs. 50, 000. For used cars, a maximum of 80% on the invoice value is sanctioned as loan.

The loan amount depends on your annual income, a maximum of 2.5 times the total income is offered as loan. If you are married and your spouse is employed then the spouse’s income is also taken into account. For new cars, loan is sanctioned for any model of car. In case of used cars, loan is offered for any model of car but the car should not have crossed five years from the date of purchase. Usually car loans include one time road tax, insurance and registration charges.

Loan tenure: Tenure varies between 12 to 84 months. The loan can be pre-paid any time after six months from when the loan was sanctioned. Any amount can be paid as pre-payment. For used cars, loan tenure can be a choice between 12, 24, 36, 48 and 84 months.

Popular NBFCs

Sundaram finance offers loans for both new and used cars. Car loans are hassle-free and involve minimal documentation. Loans are available under the following schemes

• 100% finance is provided for the car for varying tenures, this scheme is applicable for corporates.
  
• Advanced EMI scheme – Apart from the margin you can pay either two or three installments in advance. Interest charged on the loan is lesser when compared to margin money scheme.
  
• Security deposit scheme – 10% to 25% of the total loan amount has to be paid as security deposit initially. Interest charged is inclusive of the security deposit amount.
  
• Margin money scheme – 25% of the loan amount has to be paid as advance, the balance amount is financed for a fixed tenure. You have to repay the loan in EMI.
  

Note: The interest rates and tenure mentioned above are subject to change and must be cross checked with the bank. Most of the banks and NBFC’s reduce the loan principal on a daily.

Documents required for applying for car loan

While applying for a car loan, the following documents are required:

• Residence address proof
  
• ID proof
  
• Office address proof
  
• Income proof
  
• Signature proof
  

Eligibility for applying for car loan in India

To apply for a car loan (for both used and new) in India, you have to fulfill the following requirements:

• A person applying for the loan should have completed 21 years of age while applying for the loan.
  
• A loan applicant’s age at loan maturity should
  
  1. be at a maximum age of 60 if employed elsewhere
  2. be at a maximum age of 65 if self employed
  
• The applicant should have been employed for a minimum of one year in the current job and should have been employed at least for two years on the whole.
  
• The applicant should have an annual income of not les than Rs. 1,00,000. Annual income requirement varies among lending institutions.
  
• Other factors include marital status, income of spouse, educational qualification, number of dependants, current liabilities, etc.
  

Car loan tips

Banks and NBFC’s are more than willing to sanction car loans to customers. A little understanding and precaution will help the customer make a wise decision while choosing a car loan.

Choose the right lender: Check who offers the best interest, processing fee, loan term, and other aspects related to the loan. Compare and then choose your loan provider.

Choose popular car models: When you choose a car model that is sought after by the public, you are likely to get the best loan offer.

Choose trust worthy lenders: Never settle down for small timers in car finance just because they offer the best interest rates as they might land you into trouble.

Choose a loan that covers on-the-road cost: Ex showroom cost might not cover essential aspects such as insurance, registration charges, road tax, etc. Therefore choose a loan that covers the on the road cost and not just the ex-showroom cost. While applying for a loan check if these costs are covered:

1. Insurance cost
2. Road tax cost (at least one time)
3. Registration cost

Check for waiver of costs like processing fees: If you possess a clear track record in repaying your loans, you can negotiate with your bank for waiver of processing fees and other such costs.