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Vehicle Loan and Factors to consider while obtaining a vehicle loan. Best Vehicle loan providers with their interest rates.

Updated: Jan 15

The growing need for funds to purchase vehicles is predominantly met through the utilization of borrowed capital in the form of vehicle loans. These loans, typically secured, are specifically acquired to facilitate the acquisition of an automobile. The vehicle itself serves as collateral for the loan, allowing the lender the right to take possession of the vehicle in the event of the borrower's failure to repay the loan. In such cases, the lender may proceed to sell the repossessed vehicle to recoup the outstanding loan amount.

When considering external financing for a vehicle purchase, it's crucial to be mindful of various factors, which can vary depending on the lending institution. Keep an eye out for these 10 considerations to make informed decisions regarding your vehicle financing.

  1. Your budget;

  2. Your eligibility

  3. down payment

  4. Loan cost

  5. Choose the right loan tenure

  6. Type of interest

  7. Repayment flexibility

  8. Documentation

  9. Car insurance

  10. Preapproved car loan

1. Your budget

Before hitting the car dealerships, ensure you're financially ready for the ride! First, assess your monthly income and expenses to see if you comfortably swing the monthly loan payments (EMIs). Then, head online to an interest rate calculator and plug in your desired loan amount to get a clear picture of your interest and estimated monthly instalments.

2. Eligibility for loan

While securing loan eligibility is key, your car choice plays an equally crucial role. Purchasing new or used carries different financial implications. Some banks only finance new cars, while others have distinct terms for pre-owned vehicles. Used car loan eligibility, in particular, hinges on whether the purchase is from a dealer or private seller, the car's age, and other criteria.

3. Down payment;

A higher down payment reduces your car loan amount, lowering monthly payments and overall interest costs. Experts suggest putting at least 20% down. Choose a lender that matches your down payment comfort and easy eligibility. Lenders differ in financing, with some covering 100% of the car price. Consider your financial situation when selecting a lender.

4. Analyze loan cost charges:

When you choose a Car Loan, the loan provider might impose various charges like Stamp Duty, Processing Fee, Registration Certificate (RC), Collection charges, Prepayment charges, and Late Payment Fee. To minimize expenses, exploring online deals is advisable. Additionally, don't overlook checking your CIBIL report online.

5. Choose the right loan tenure;

By selecting the loan repayment tenure, you can compute the Equated Monthly Installment (EMI) using the interest rate, determining the loan's affordability. Keep in mind that although a longer tenure may appear convenient, it results in higher overall interest payments. It's advisable to opt for a shorter repayment period to minimize interest expenses.

6. Type of interest:

The overall expense of your car includes the principal amount of the car loan along with the accrued interest during the loan term. Financial institutions provide different car loan interest rates, categorized as floating and flat. It's essential to meticulously review and compare interest rates from various lenders to secure the most favorable car loan deal

7. Prepayment flexibility

our lender might impose prepayment charges when you decide to prepay or close your car loan early. Before selecting a car loan lender, ensure you inquire about any potential prepayment or pre-closure penalties. Opt for a lender with the most lenient penalty terms for car loan prepayment to minimize additional costs.

8. Documentation:

When seeking a car loan, banks and other lending institutions will request specific documents, including proof of identity, address, and income, among others. These documents can be submitted either online or in person.

9. Car insurance

Insuring your car is essential, and just as you scrutinize your car loan options, apply the same level of diligence to assess insurance choices. Research and compare various policies to find the best deal that suits your car and requirements.

10. Pre-approved Vehicle Loan

Explore digital disbursement and pre-approval for Car Loans. It offers credit assurance before purchase, allowing confident negotiations. Obtain an Approval Letter online through Internet Banking for a seamless and paperless process.

Here is a table showing some of the best car loan-providing banks as of the latest date, provided with the interest rates.

Sample Eligibility Criteria of HDFC Bank is as follows:

Name of Bank

Interest rate

Processing fee

State bank of India

7.20% p.a. onwards

Starting from 0.40% of the Loan


7.50% p.a onwards

Up to 1% of the loan amount

Federal Bank

8.50% p.a. onwards

As per terms and conditions

Union Bank

7.85% p.a onwards

Up to 1% of the loan amount

Axis Bank

7.45% p.a. onwards

Minimum: Rs.3,500, Maximum of Rs.7,000

Bank of Baroda

7.00% p.a. onwards


Canara Bank

7.30% p.a. onwards

0.25% of the loan amount, subject to a minimum of Rs.1,000 and a maximum of Rs.5,000

Kotak Mahindra Bank

7.70% onwards

Up to 2% of the loan amount

Punjab National bank

8.60% onwards

​Up to 1% of the loan amount


7.80% onwards

Up to 1% of the loan amount

The following people are eligible to apply for a New Car Loan:

Salaried Individuals:​​​​​​​

● This includes employees of private limited companies, employees from public sector undertakings, including central, state and local bodies

● Individuals who are a minimum of 21 years of age at the time of applying for the loan, and no older than 60 at the end of the loan tenure

● Individuals who have had a job for at least 2 years, with a minimum of 1 year with the current employer

● Those who earn a minimum of Rs. 3,00,000 per year, including the income of the spouse/co-applicant

● Individuals who have a telephone/post-paid mobile

Self Employed Individuals and Professionals (Sole Proprietorship):

● This includes self-employed sole proprietors in the business of manufacturing, trading or services

● Individuals who are a minimum of 21 years of age at the time of applying for the loan, and no older than 65 at the end of the loan tenure

● Those who have been in business for a minimum of 2 years

● Should earn at least Rs. Rs. 3,00,000 per annum

Self Employed Individuals and Professionals (Partnership Firms):

● This includes self-employed partners in the business of manufacturing, trading or services

● Those who have a minimum turnover of Rs. Rs. 3,00,000 per annum

Self Employed Individuals and Professionals (Private Limited Companies):

● This includes individuals who own a private company in the business of manufacturing, trading or services

● Should earn at least Rs. Rs. 3,00,000 per annum

Self Employed Individuals (Public Limited Companies):

● This includes directors in public limited companies that are in the business of manufacturing, trading or services

● Should earn at least Rs. Rs. 3,00,000 per annum

Prasanna Laxmi R. , Assistant Content Manager

An MBA student specializing in Finance, driven by a keen interest in exploring the complexities of finance to navigate the business landscape


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