Updated on : 6 May, 2018

Personal Finance - Car Loans

With the growing competition for personal finance among banks and financial institutions, every bank/ financial institution is coming with attractions like prompt finance, easy installments, low interest rates etc. An individual looking for car finance should compare the offers carefully before finalizing the bank / financial institution for availing the finance. Some important aspect need to be compared are:

The features, in general, of Car Loans available from banks are as under:

PurposeFor purchase of a New Car, a Jeep or a Multi Utility Vehicle

For purchase of a Used Car a Jeep or a Multi Utility Vehicle. Usually banks finance used cars not older than 5 - 10 yea₹ The age of the used car eligible for finance differs from bank to bank. For taking over of a Car Loan from another bank or financial institution.

Eligibility 21 to 60 years for salaried class borrowers with a minimum one year in employment and 21 - 65 years for self-employed borrowers.

An annual income of ₹ 1 lac or more. (Differs from Bank to Bank.)

Amount of LoanThe amount of loan is determined by:
  • There is no upper limit for sanction of a car loan.
  • The eligibility for the loan amount is determined by the income of the borrower and the cost of the vehicle proposed to be purchased.
  • Banks generally finance upto 2.5 times the net annual income of the borrower or 80-90% of the cost of the vehicle, whichever is lower.
  • Cost of Insurance and registration is also permitted to be included in the cost of vehicle by some banks for arriving at the amount of loan.
Interest RateThe interest rate applicable on car loans is usually linked to the Advance/ Lending Rate of the financing bank and varies with the change in Prime Lending Rate (PLR)/Advance Rate of the bank.

Some banks charge interest on daily reducing balance basis and some banks charge interest on monthly reducing balance basis. The charging of interest on daily reducing balance basis results less interest load on the borrower.

Processing fee and / or Application Handling ChargesThe amount of processing fee / Application handling charges differ from bank to bank. Some banks charge a flat amount and some charge a percentage of the loan amount.
Some banks also retain a portion of the processing charges/fee in case of rejection of the loan application by the bank.
Type of Loan and RepaymentThe loan is sanctioned as Term Loan. The repayment is allowed by way of monthly installments for a maximum period of 7 years.
ApplicationApplication for the loan is required to be made on standard application form of the financing bank / financial institution.
Pre-sanction DocumentsThe application has to accompany the following documents:
  • Two Passport size photographs.
  • Quotation from the dealer for the car to be purchased / copy of Sale Agreement with the seller in case of a used car.
  • Valuation Certificate from approved valuer in case of a used car.
  • Proof of identification (Not required in case of existing account holders) - Copy of Passport, Identity Card issued by the employer, Voter Id Card, PAN Card etc.,
  • Proof of address - Copy of a utility bill (electricity, water, telephone, gas etc.) in borrower's name at the given address, Voter Id Card, letter from employer, Credit Card statement etc.
  • Proof of income : Latest salary Slip showing all deductions and
    Copy of Form 16 issued by the employer for past one/ two years or copies of income tax returns filed.
  • Statement of Bank Account for last 12/24 months.
  • Post dated cheques for the monthly installments of the loan
Post Sanction/ Disbursal DocumentsAfter sanction of the loan by the banks, undernoted documents are required to be executed/ furnished by borrowers to banks:
  • Hypothecation Agreement on non-judicial stamp paper for hypothecating the vehicle to the Bank / financial institution.
  • Term Loan agreement on non-judicial stamp paper.
  • Third Party Guarantee on non-judicial stamp paper- Banks may ask for guarantee of a person whose networth is good for the amount involved.
  • Copy of Registration Certificate (RC book) with noting of the Bank's interest in the car / vehicle as financer (Bank Clause).
  • Copy of Insurance Policy with noting of the Bank's interest as financer in the insurance policy.
Pre-payment / Advance Payment of LoanAll banks usually charge penalty for pre-payment of loan. However, the amount of penalty differs from bank to bank.

Disclaimer does not make any claim that the information provided on its pages is correct and up-to-date. The contents of this site cannot be treated or interpreted as a statement of law. In case, any loss or damage is caused to any person due to his/her treating or interpreting the contents of this site or any part thereof as correct, complete and up-to-date statement of law out of ignorance or otherwise, this site will not be liable in any manner whatsoever for such loss or damage.