Car Loan

car loan is a financial product that allows individuals to purchase a new or used vehicle by borrowing funds from banks, non-banking financial companies (NBFCs), or other financial institutions. These loans typically cover a significant portion of the car's value, with repayment terms and interest rates varying based on the lender and the borrower's profile.

Key Features of Car Loans in India:

• Loan Amount: Financial institutions generally offer loans covering up to 100% of the car's on-road price, depending on the applicant's eligibility and the lender's policies.
• Interest Rates: Interest rates for car loans vary among lenders and are influenced by factors such as the applicant's credit score, the type of car (new or used), and loan tenure. As of November 2024, rates for new car loans start as low as 8.50% per annum.
• Loan Tenure: The repayment period for car loans typically ranges from 1 to 7 years. Longer tenures may result in lower monthly payments but could lead to higher total interest paid over the loan's life.

Eligibility Criteria:

• Age: Applicants are generally required to be between 18 and 75 years old.
• Income: A minimum monthly income is often stipulated, varying by lender and applicant type (salaried or self-employed). For example, Bajaj Finserv requires a minimum monthly salary of ₹25,000 for salaried individuals.
• Employment History: Lenders typically seek applicants with a stable employment or business history, such as a minimum of 1 year with the current employer for salaried individuals.

Documents Required:

• Identity Proof: Government-issued ID such as Aadhaar card, passport, or driver's license.
• Address Proof: Documents like utility bills, passport, or rental agreements.
• Income Proof: Salary slips, bank statements, or income tax returns.
• Employment Proof: Employment ID card or business proof.

Considerations Before Applying:

• Credit Score: A higher credit score enhances your chances of loan approval and may qualify you for lower interest rates.
• Down Payment: Making a substantial down payment reduces the loan amount and can demonstrate financial responsibility to lenders.
• Loan Terms: Review the loan tenure, interest rate type (fixed or floating), and any associated fees to ensure they align with your financial capabilities.

Recent Developments:

In February 2025, India's central bank reduced the benchmark interest rate by 0.25 percentage points to 6.25% to stimulate economic growth. This reduction may influence car loan interest rates, potentially leading to more favorable borrowing costs.

Conclusion:

Car loans provide an accessible means to finance the purchase of a vehicle, with various options available to suit different financial situations. It's essential to compare offers from multiple lenders, understand the terms and conditions, and assess your repayment capacity before committing to a loan.