Cars are no longer the symbol of wealth they were in the past. Especially in the current times of social distancing, they are simply a convenient mode of transport for the entire family.
While buying a car is an exciting event, it does involve some less-thrilling steps, like ensuring that its purchase is funded as efficiently as possible – or at least without burning a long-lasting hole in the pocket.
A car loan, which can be availed from either a bank or a non-banking financial company, enables the buyer to purchase a car without having to pay the entire cost upfront.
Just like cars, not all car loans are equal. All of them carry an interest cost and are to be repaid over a period of pre-agreed time (referred to as the loan tenure). The loan repayment is typically structured as equated monthly instalments (EMIs). A well-planned loan, which can be estimated with a car loan calculator, will minimize the interest outflow, thereby bringing down the overall cost of the car itself. It is crucial to assess how much monthly cash can one spare, and ensure that the car loan EMI is equal to, or even lower than, the extra money at one’s disposal.
There are tools available online, like a car loan EMI calculator, that can clearly help you estimate the EMI payable on a given loan amount and loan tenure. Using these tools, prospective borrowers can see how their monthly payout changes with a different loan amount and tenure, thereby upgrading or downgrading their car.
While the loan amount will be dependent on the applicant’s income levels and creditworthiness, there are multiple options for buyers to choose from. Some popular options and their interest rates are as below.
- New car loan rates: Various banks offer car loans in India, and their interest rates, currently ranging from 9.25% to 10.1%, vary depending on the bank. It is often easier to get a loan sanctioned if the borrower has an account in the same bank, which can simplify the application process.
- Used car loan rates: The interest rate on used cars is dependent on the car age, with older car financing often costing more than that for newer cars. While this, too, varies from bank to bank, it is usually significantly higher than a new car rate. For instance, State Bank of India’s (SBI’s) new car loan carries an interest rate of 9.8%, while its used car loan has an interest rate of 16.9%-17.2%.
- Processing fees: Even though they are not charged annually, the processing fees on car loans can be a significant consideration while choosing between loan providers. Some banks cap the maximum processing fee, while some levy up to 1% of the loan amount, which can be considerable on non-budget cars.
- Other factors: While not a standard feature across lenders, some banks, like SBI, offer marginally lower interest rates for women. Other such factors to consider are prepayment and foreclosure costs, interest rate variability, etc.
The decision to opt for a car loan no longer needs to be a poorly evaluated one. Instead, it can be made with efficient planning, using tools like a car loan eligibility calculator. These tools can even be seen as a way to enhance the pleasure of owning a car.