Buying an automobile - whether a new or used car or even a two-wheeler - can be quite a drain on your wallet. An auto loan is probably the best way to finance your vehicle so long as you research for the loan that best suits your needs including the interest rate offered, loan period (tenure) and the various other terms and conditions.
What are the Interest Rates on an Automobile Loan?
Unlike home loans, automobile loans have fixed interest rates. Your lender will fix a rate based on a variety of factors. For instance, the interest rate on a loan for purchasing a luxury car will be lower than the rate for a compact car since the down payment made on a luxury car is far larger making the loan amount relatively small compared to the value of the car.
The rates on automobile loans can vary depending on a variety of other factors including your relationship with the bank (if you are existing customer), the car segment (as mentioned above), and the tenure of the loan. The interest rate charged for a used car loan will take into account all these factors plus the age and segment of the car, the tenure of the loan, and whether it is a product variant like a top-up loan or refinance.
What is the Loan Amount and Tenure of an Automobile Loan?
In general, lenders can give up to 90% of the invoice value of the vehicle. Some lenders offer 100% financing on certain brands and models of cars. The invoice value does not include the additional costs incurred when you buy a vehicle such as taxes or insurance. The invoice value refers only to the price of the vehicle in the showroom.
The tenure on an auto loan varies from 1-7 years. Again, lenders will decide the loan period based on the car segment, relationship with the bank, your monthly income and ability to repay. Auto loans have a shorter repayment period than home loans since the loan amount is relatively smaller. Loans for used cars have a shorter tenure than new cars.
How do I know which Car/Loan offer to Choose?
The only way to make a decision is to thoroughly research the various options offered. Some lender websites have a section on the various cars on the market that might help you get a more comprehensive idea of what is available in the market, without having to visit multiple dealers.
Similarly, read up on all the offers compare the features and benefits, and determine which offer best fits your credit requirements.
Above all, do not rush the decision. An auto loan can be a years-long commitment and it is important to find both the vehicle and the loan offer that is most suitable.