Considering purchasing a car? The process can be made easier with a range of Car Loan types, each tailored to suit different buyers. The options vary from buying a brand-new car fresh from the showroom to a pre-owned car or opting for a top-up loan on a car you already own. By fully understanding these choices, you can align your financial objectives with your desired vehicle.
Secured Auto Loans vs Unsecured Auto Loans
When considering types of Auto Loans, understanding the difference between secured and unsecured loans is vital.
| Feature |
Secured Auto Loans |
Unsecured Auto Loans |
| Collateral |
Required (the vehicle itself usually acts as collateral) |
Not required |
| Interest Rates |
Typically lower as the lender has collateral to fall back on |
Higher due to the increased risk for the lender |
| Loan Amount |
It can be higher based on collateral value. |
Usually lower due to the lack of collateral. |
| Repayment Period |
Longer terms may be available due to the secured nature. |
Shorter terms are common as there's more risk involved. |
| Suitable for |
Borrowers looking for lower rates and higher amounts. |
Borrowers with good credit scores to avoid collateral. |
Types of Car Loans in India
From those eager to drive off the showroom floor in a brand-new car to individuals looking to leverage the value of their current vehicle for financial needs, there's a loan option available for every scenario. Here's a closer look at the types of Car Loans available in India:
New Car Loan
Securing a Car Loan could be your first step towards acquiring the latest model from your favourite brand. Most financiers are prepared to provide up to 90% of the vehicle's on-road cost, leaving the balance of 10% to be settled as your initial contribution. This on-road price includes everything from showroom to mandatory costs such as insurance, registration fees managed by the Regional Transport Office (RTO), and applicable road taxes.
Used Car Loan
If cost efficiency is a priority, consider a Pre-owned Car Loan. This option is perfect for those looking to own a vehicle without the steep price tag of a brand-new model. Financiers typically offer up to 75% financing for a pre-owned vehicle, with the car itself serving as security until the loan is fully repaid, including all EMIs. The loan term is usually eight years, considering the car's depreciated value and age.
Loan against car
A Loan Against Car offers a practical solution for those needing extra funds to purchase a new car, allowing your current vehicle to serve as collateral. Banks provide a range of loan amounts, with some offering up to ₹10 lakh or even 100% of your car's valuation price. The interest rates for these loans tend to be on the higher side.
What are the features of a Car Loan?
Understanding the features of Car Loan is crucial in selecting the right financing option for your needs. Here are the features that all types of auto loans carry and you should be aware of while making any decision:
Car Loan amount
The loan amount is pivotal, as it usually covers most of the car's on-road price. The specific percentage can vary widely, often up to 80-90% of the vehicle's value, depending on your eligibility criteria, such as income, credit score, and relationship with the lender. Some lenders may offer up to 100% financing for certain models or to customers with an exceptional credit history, reducing the initial financial burden on the buyer.
Car Loan tenure
Flexibility in loan tenure is another significant feature, with terms typically ranging from 1 to 7 years. This flexibility allows borrowers to choose a repayment period that best suits their financial situation. A longer tenure can reduce the monthly EMI, making the loan more manageable every month, but it may increase the total interest paid over the life of the loan. Conversely, a shorter tenure means higher EMIs but less interest overall, enabling quicker loan repayment.
Car Loan interest rate
The interest rate on a Vehicle Loan can vary significantly based on the loan type, tenure, and, most importantly, your credit profile. Interest rates determine the overall cost of borrowing and can affect your decision on whether to proceed with a loan. Rates can be fixed or floating, with fixed rates remaining constant throughout the loan period and floating rates subject to change based on market conditions.
Car Loan EMI
Equated Monthly Installments (EMI) are critical. It represents the monthly outgo towards repaying your loan. EMIs can be calculated using the loan amount, interest rate, and tenure, clearly showing your monthly financial commitment. Many lenders offer online EMI calculators to help you understand your repayment structure.
Processing fee
Finally, the processing fee is a nominal charge the lender imposes for processing your loan application. This fee covers the administrative costs involved in the loan approval process and is usually a percentage of the loan amount. The fee can vary from lender to lender and may be waived during special promotions or for valued customers.
Also Read: How to get a Car Loan to buy your dream car?
If you're in the market for a new vehicle, Axis Bank's New Car Loan could be your route to the driver's seat. Offering Car Loans starting from as low as ₹1 Lakh with the potential for 100% on-road funding, Axis Bank ensures a smooth ride from application to approval with attractive interest rates and terms. The repayment tenure is flexible, and you can earn Axis eDGE Reward points.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
