Owning a car or bike is a milestone for many. Vehicles are more than conveyances that take you from one place to another. It's a symbol of success, pride, accomplishment, and independence. Even today, when ride-hailing services are frequently used, all families aspire to own a car they can use at their convenience.
Today, it's easier than ever before to own a car or bike, thanks to the easy availability of auto loans. Besides simple eligibility, auto loans offer attractive interest rates that work in favour of the vehicle owner.
Here, in this guide, we take a closer look at the two types of interest rates levied on auto loans as well as the latest interest rates charged by leading lenders.
Types of Interest Rates Levied on Auto Loans
The interest rate of an automobile loan can either be fixed or floating in nature. When the interest rate is fixed, it remains the same for the entire loan tenure. The interest rate is decided at the beginning of the loan and is not influenced by changing market conditions.
On the other hand, when the interest rate is floating in nature, it keeps changing depending on the market trends. Here’s a chart that lists out the differences between floating and fixed interest rates.
|Fixed Interest Rate||Floating Interest Rate|
|EMI remains the same for the entire loan tenure.||EMI changes depending on the fluctuations of the MCLR.|
|The interest rate is relatively higher.||The interest rate is relatively lower. However, note that it can get higher depending on market conditions.|
|Lower risk for the borrower as the interest rate is fixed.||Higher risk for the borrower.|
|You can budget accordingly, as you know beforehand the EMI.||Planning monthly budgets becomes a challenge, as EMI can vary.|
|Ideal for short-term loans of 3 to 7 years.||Ideal for loans of longer tenures up to 20 or 30 years.|
Should you opt for floating or fixed interest rates for auto loans?
It's recommended to opt for fixed interest rates as auto loans are generally short-term loans. However, if you can predict a fall in interest rates shortly, then you can choose for floating interest rates.
Interest Rates on Auto Loans at Leading Banks
Here we have compiled the current interest rates on auto loans from leading lenders. Note that these are the starting interest rates and you may see slight variations in the actual interest rate depending on the terms and conditions of your loan and your borrowing capabilities.
|S.No.||Bank Name||Auto Loan Interest Rate|
|1||Allahabad Bank||8.30% to 9.75%|
|3||Canara Bank||8.50 to 11.05%|
|4||Central Bank of India||9.00% to 9.15%|
|5||Corporation Bank||8.50% to 9.00%|
|6||City Union Bank||14.50%|
|7||Federal Bank of India||9.25%|
|8||HDFC Bank||9.50% to 10.25%|
|9||ICICI Bank||9.30% to 12.85%|
|10||Indian Overseas Bank||8.70%|
|11||IDBI Bank||9.20% to 9.80%|
|12||Jammu and Kashmir Bank||11.25%|
|13||Karnataka Bank||9.09% to 10.94%|
|14||Karur Vysya Bank||9.45% to 10.55%|
|15||Lakshmi Vilas Bank||9.95%|
|16||Oriental Bank of Commerce||8.30% to 8.75%|
|17||Punjab and Sind Bank||8.70%|
|18||Punjab National Bank||9.00%|
|19||South Indian Bank||12.15% to 13.15%|
|20||State Bank of India||8.65% to 12.10%|
|21||Syndicate Bank||9.10% to 9.35%|
|22||Tamilnad Mercantile Bank||10.35% to 11.60%|
|24||Union Bank of India||8.60% to 8.70%|
|25||United Bank of India||8.60% to 8.75%|
|26||Yes Bank||9.09% to 10.94%|
*Data as of March 2020. Contact your bank for the current interest rates.
Compare Lenders and Choose the Bank that offers the Best Interest Rate
Once you have decided on your vehicle type and model, the next step is to compare lenders. Use online comparison tables to find the interest rates, eligibility and features of auto loans at various lenders, so that you can pick the best deal.
FAQs on Auto Loan Interest Rates
I have a low credit score. Will it impact my auto loan eligibility and the interest rate?
Yes. The first thing lenders do when you apply for an auto loan is to check your credit score. If you have a low credit score, then it increases the risk of the loan for the lender. The lender may not sanction your loan request, and even if authorised, you may be charged a higher rate of interest.
Can I negotiate with the lender to reduce the interest rate on my loan?
Yes. It helps if you have a high credit score and good credit history. Also, if you already have a relationship with the lender like holding a salary bank account, then the lender is likely to give you reduced interest rates. However, note that reduction in interest rates are at the sole discretion of the lender and may not always be available.
Should I opt for auto loans with a fixed interest rate or floating interest rate?
There is no single answer. It depends on your specific situation. Generally, the majority of lenders offer both fixed and floating interest rates. You can choose either one depending on market conditions.
Most borrowers opt for fixed interest rates as they are assured of the same EMIs throughout the tenure. However, if market conditions indicate a reduction in the interest rate shortly, then opting for a floating interest rate may be the better choice. Before you apply for an auto loan, check with your lender on the type of interest rate offered and make the right choice.
Can I reduce the interest charged on my car loan by paying a higher down payment?
Yes. When you increase your down payment, it reduces the total amount you’re borrowing, which in turn, reduces the risk quotient for the lender. Hence, the lender is likely to offer you a lower interest rate.
Do women drivers receive any special interest rates on auto loans?
Yes. Certain banks like State Bank of India offer lower interest rates for women drivers. So, if you are a woman driver, check out if there are any eligible schemes to help you avail car loans at lowered interest rates.