There are 3 types of car loans that are offered by reputed banks and NBFCs, so as to fund individuals to buy their car.
New car loan- New car loan scheme provides funding to individuals who are dreaming of buying their brand new car but lacks funding. These types of car loans provide a majority of the fund, but a small portion of the car price has to be paid by the borrower only. HDFC car loan offers an interest rate between 9% to 14% p.a. and the repayment tenure is suitable for long term loans as it ranges between 1 to 7 years. Lastly, new car loans are available on both national and international companies.
Used car loan- Used car loan scheme falls under the category where funding is provided to borrowers willing to purchase a second-hand car. Most banks (like ICICI car loan) and NBFCs offer up to 85% funding of the total price of the car that is selected by the borrower, but some institutions even go as far as paying credit for 100% of the price. This credit has to be repaid within a tenure of 1 to 5 years.
Interest rates charged on used car loans are higher than that of new car loans, as it ranges between 12% to 18% p.a. This type of car loans can be used to buy any car that has been used less than a period of 5 years or does not increase a time period of 10 years when it proceeds to the time of maturity.
Loan against Car- Under this scheme, a borrower has to pledge his old car as collateral in order to get funds to purchase a new car. This procedure of providing collateral to get funds for buying a new car is known as a Loan against a car. A lot of banks and other financial institutions offer a loan amount up to INR 10 lakh or sometimes go to the extent of paying the entire price of the car model selected. Further, this loan is to be repaid under an interest rate ranging from 14% to 15% per annum within flexible loan tenure of 1 to 3 years. This option of a car loan is suitable for an individual who has a bad credit score, he can pledge his old car as collateral in order to buy a new one.
Applying for a car loan has become comparatively easy with the advancement of technology. Now a borrower does not have the need to roam from one head office to another in order to apply for a car loan. The first thing that is to be done before applying for a car loan is that the car model is to be selected as the loan amount will be decided on the basis of that. Then one has to apply for a car loan in the particular institution they have chosen.
The applicant has to submit important documents that will include income proof, for which documents like the latest bank statements, salary slip of the last three months, or form 16 is to be submitted. To prove one’s identity, one has to submit either an Aadhar card, Voter’s ID card, Passport, or even a driving license. Further, an individual also has to prove his address is verified, for that he needs to submit either a ration card, utility bills (like telephone and electricity bills).
Car loans can prove to be beneficial if a short tenure is kept while repayment as it will help the borrower to pay fewer interests on the principal. One can also opt down payment method as it is also suitable for reducing charges of interest rates.
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