What is Car Loan?

You can avail a loan from a bank to purchase a brand-new car. You have to pledge the car as collateral to avail this loan. You can also avail a loan for a pre-owned car.

Types of Vehicle Loan

• Secured vehicle loan: Your car is the collateral for your loan. If you do not repay your car loan, the bank can repossess and sell the car to get the money back.
• Unsecured vehicle loan: You avail an unsecured car loan to purchase a used car. You need not offer the car as security for the loan. You are sanctioned a smaller quantum of loan than a new car loan, and at a higher interest rate.

Benefits of Vehicle Loan

• Makes easy to buy vehicle: As many banks provide up to 100% finance on ex-showroom price, you don’t have to wait long to buy your dream car.
• Flexibility to choose the tenure: Banks offer car loan for tenure of up to 7 years. You have the flexibility to choose the tenure as per your convenience.
• Loan for buying used vehicle: Many banks offer loan on used vehicle these days. Although the interest rate will be higher than the interest rate on new car loan and the loan-to-value (LTV) ratio will be lower than the new vehicle loan.
• Interest rate can be negotiated: Unlike home loan in case of vehicle loan you have the flexibility to negotiate the interest rate with your lender if you have a good credit score and have good relationships with the bank.
• No collateral required: You don’t have to put any collateral to avail the vehicle loan as your vehicle will act as a security with the bank and in case you fail to make the payment, the bank has the rights to seize the vehicle and sell it off to recover the funds.
• Flexibility to choose the payment mode: You can choose to pay through post-dated cheques or use the auto debit facility where your equated monthly instalments (EMIs) will be automatically deducted from your bank account.
• Flexibility to choose the fixed or floating interest rate option: You can choose the type of interest rate whether fixed or floating. The interest rate will depend on the type of interest rate you are choosing.

Documents Required for Vehicle Loan

• Duly filled application form
• Photographs
• Know your customer documents – any one identity proof (Voter Id, passport, ration card) and any one address proof (electricity bill, phone bill, passport)
• Income proof- latest salary slip
• At times bank may also ask for employment stability proof