Lowest Car Loan Interest Rate
Overview
Several lenders offer the lowest car loan interest rate in India. The interest rates for car loans in India start at as low as 7.25% p.a. Based on your credit rating, you can avail of a car loan that finances up to 100% of the on-road price of the car. If you’re planning to take a car loan, do note that most lenders would finance up to 80%-90% of the car’s on-road price for tenures up to seven years. After months of setbacks due to the Covid-19 pandemic, the Indian automotive industry has started embarking on a recovery path ahead of the much-anticipated festive season. Top carmakers, including Maruti Suzuki, Hyundai, and Tata Motors, saw their year-on-year domestic sales grow by 37%, 26%, and 101%, respectively, in July this year. There are so many banks with the lowest interest rate for car loans to consider.
Types of Car Loan Interest Rates - Fixed and Floating
Car loan interest rates can be lowest car finance rates fixed or floating in nature. A fixed interest rate refers to a rate that remains constant throughout the loan tenure. Factors like market fluctuations do not affect fixed interest rates. On the other hand, a floating interest rate is a type of rate that keeps getting modified as per changing trends in the financial market
Fixed interest rates: When the financial market is not performing too well, borrowers generally look at fixed interest rates. You can ideally fix an interest rate for your auto loan at your convenience. It is wise to go for a fixed interest rate if you feel that there may be an increase in the interest rates anytime soon or if you feel that the financial market may not go down lower than a particular level.
Floating interest rates: These rates are cheaper than fixed interest rates. Floating rates change according to changes in market trends. When the base rate or the MCLR changes, a floating interest rate gets affected. Hence, when the rate goes up, your car loan EMIs may increase and this can be a hassle for you. However, when the rate goes down, you can enjoy savings over a long period. The main drawback related to floating interest rates is that you cannot stick to your financial plans effectively as the rates can change from time to time.
Benefits of Car Loans
- In India, apart from the issue that paying such a huge sum of cash may disturb one's budget, massive purchases with liquid cash could put you on the Income Tax department's radar as well. When you get a car loan to pay for your car, you manage to retain your savings for other current and future expenses with lowest car interest rates. One of the greatest car loan benefits in India is that the loan is secured against the car itself, so, you do not have to mortgage your property or other assets to get a car loan.
- You also get to use your car while you are servicing the car loan term, so a few years down the line you have added to your original savings and have the opportunity to own the car having paid off your car loan completely. This gives you the chance to augment your crucial credit history by procuring a car loan and strictly adhering to the repayment cycle. A good credit history including timely payments and cleared debts help you obtain further loans in the future. Car loans, therefore, are a very safe and certain way of purchasing your car.
Car Loan Characteristics
Car loans in India generally carry the following features:-
One can opt for a new or used car loan depending upon the need and the kind of car requirement. Though, most people prefer a car loan over new cars and not second-hand ones.
Car loan option in India, for a majority, is an alternative that lets them purchase a car that is better than the one available in their budget since the car loan approval is quick.
Car loans in India generally provide a fixed rate of interest option while repayment through EMIs.
This keeps you assured of a fixed repayable amount every month towards the car loan, facilitating better budget planning without disturbing your usual expenses.
Car Loan Documents Required
Several lowest auto loan interest rate documents that establish necessary information like your identity, proof of income, and residence are required for a car loan application. But out of all, the documents relating to a new or old car, are the most important. The complete set of relevant car loan documents makes one eligible for the loan and one cannot do without submitting the right docs. Though the documentation requirements vary from lender to lender, the following is a list of commonly asked for documents required while applying for a car loan :
Income proof documents for Self-employed persons:-
Duly signed and filled application form available either on the website or physically at the bank's outlets
Passport Size Photographs, generally 4-6 photos
An identity proof which can be one of these documents- Passport, Pan Card, Driving License, Voters ID card, Aadhaar card or employee identity card in case of government employees
Address Proof like Bank statement, Rent Agreement, Voters ID card, Ration card, Passport, Driving License, Telephone bill, Electricity or water Bills, Credit card bill or Property tax document
Age Proof which may be a Voter ID card, Secondary school leaving certificate (class 10), Birth certificate, Passport, Aadhaar card, Pension payment order, or Receipt of LIC policy.
Income proof documents in case of salaried individuals:-
Latest 3 months' salary slips
Form 16 with proper computation of income salary account bank statement for six months
Latest acknowledged IT return
Business stability and ownership proof
Last two years' computation of income
Profit and Loss statement
Balance sheet certified by a C.A
Reasons that may hamper the Interest rate:-
Credit Score – If you have a credit score of above 750, lenders are likely to offer you a car loan at a low-interest rate. This is because a healthy credit score indicates to the lender that lending to you is less risky since you have been sincere about your past repayments as indicated by your score. So, if you want a lower interest rate on your car loan, it is a good idea to keep your credit score at healthy levels. Having a good credit score may also fetch you additional benefits such as quick approvals, pre-approved offers, etc.
Repayment Tenure - The repayment tenure you choose for your car loan will impact your interest rate. If you choose a longer tenure, your EMIs will be lower but you will be paying higher interest over the loan tenure. On the other hand, if you choose a shorter tenure, though the EMIs will be higher, you will be able to clear the loan sooner. Lenders will typically charge a lower interest rate on the car loan if you choose a shorter tenure simply for the fact that the loan will be cleared faster.
Loan Amount – The amount of car loan that you avail will affect the interest rate charged on your car loan. If you opt for a higher loan amount, you may get a lower interest rate and vice versa. This will, however, vary from lender to lender.
Relationship with the lender – Lenders with whom you have a good relationship, in terms of payments and other transactions, may offer car loans at lower interest rates. Hence, before you approach other lenders for car loans, ensure that you check the interest rates offered by your existing lender.
Income – If your income is on the higher side, you may enjoy the benefit of a lower interest rate as a higher income indicates higher repayment capacity.
Conclusion
If you’re planning to take a car loan, do note that most lenders would finance up to 80%-90% of the car’s on-road price (meaning, the balance would have to be borne out of pocket) for tenures up to seven years, while some banks could lend up to 100% of the car’s valuation cost subject to terms and conditions. That being said, the car loan interest rate applicable to you would be determined by the lender based on your age, income, credit score, loan amount, etc,
Questions and Answers
How can I get a car loan with a lower interest rate?
If you have a high credit score (above 750), make a higher down payment, choose a shorter repayment tenure, and have a steady source of income, you can negotiate with the lenders to offer you a lower interest rate on a car loan. Most lenders will be happy to acknowledge your request.
However, before you negotiate with other lenders, make sure you check with your existing lender when it comes to lowest used car interest rates.
As they are already aware of your transaction history, there are high chances of them acknowledging your request.
Should I go for a fixed or floating rate of interest?
If you choose a car loan with a fixed interest rate, the interest that you will be paying will remain unchanged throughout the loan tenure.
However, if you go for a floating rate of interest, the interest that you will be paid may be higher or lower based on the increase or decrease in the interest rate.
A fixed interest rate is recommended if you feel that there are chances of the interest rate increasing in the future and you do not want to take any risks.
What is a car loan EMI? How is this calculated?
EMIs or Equated Monthly Installments refer to the monthly payments you make to the lender to repay your car loan. These payments include the principal amount as well as the interest. The amount of EMI you have to pay depends on the tenure of your car loan. For a longer tenure, loan repayment is spread over a greater number of years and the installments are smaller whereas, for a shorter tenure, installments will be larger.