Banks in India offer 3 types of car loans - new car loan, used car loan, and loan against car. As the names suggest, a new car loan is used to purchase a new car while a used car loan is used to purchase a secondhand or pre-owned car. Loan against car is wherein you pledge your old car as collateral in order obtain a car loan from the bank to either purchase a new car or meet any other financial need. The loan amount, loan tenure, and interest rate of a car loan varies depending on the bank and the type of loan that you have chosen.
When you are in need of urgent cash but don't meet the eligibility criteria for a new or used car loan, then you can opt for a loan against car as your old car acts collateral. In the case of a loan against car, the loan amount depends on the value of the used car. The value of used cars is determined by car experts who are appointed by the bank. If you are pledging a new car, then the loan amount will be equal to the overdraft limit minus the outstanding due of your car loan. For loan against car, banks usually lend a loan amount of Rs.50,000 to Rs.7 lakh.
What is the eligibility criteria for loan against car?
Most makes and models of cars that are not more than 5 years old can be used as collateral to obtain a loan against car. The lenders have their own list of makes and models of cars that they will accept as collateral. Banks usually don't offer loan against car models that are no longer in production or in the market.
Who is eligible for a loan against car?
In order to obtain a low-interest rate personal loan, you must have a good credit score of 750 or above, a steady income, and a stable occupation. If you donâ€™t meet the personal loan eligibility criteria, it may be difficult to avail a loan in your hour of need. Fortunately, in an unforeseen financial crunch such as a medical emergency or the urgent need for cash, you can opt for a loan against car. Furthermore, the interest rate of a loan against car is comparatively lower than credit card advances or a personal loan. On a side note, having a suitable health insurance policy will ensure you are covered against urgent medical emergencies. Therefore, invest in a good health insurance plan that includes hospital cash benefit cover, personal accident cover, critical illness cover, etc.
What are the documents required to avail a loan against car?
To apply for a loan against car, download the application form from the bank website. Submit the duly-filled and signed application form along with the necessary documents such as identity proof (Aadhaar card, PAN card, Passport, Voterâ€™s ID), age proof (birth certificate or 12th school certificate), address proof (utility bills like electricity and telephone bills), income proof (the last few monthsâ€™ bank statement, the latest payslips, Form 16 or IT Returns, Business Ownership Certificate), and sanction letter for existing loan. Other documents required to apply for a loan against car are the legal documents of the car that you are pledging as collateral such as RC book, valid car insurance policy documents, PUC certificate, etc.
How to choose a suitable loan against car offer?
Loan against car is also known as car overdraft facility. This type of loan is akin to obtaining a personal loan, except it is a secured loan that can be used for any monetary purpose. Loans against cars have a loan tenure of 1 to 3 years and a loan amount of 80-90% of the value of the used car. Some banks offer pre-approved loan against car for their privileged customers with super-fast loan processing and instant loan disbursal.
Visit a third-party comparison website bankbazaar to compare the features and benefits of various loan against car offers across the top banks in India. Choose a car loan with the lowest interest rate, a suitable loan tenure, and flexible repayment options. Find out the various charges and fees levied by the bank on your loan against car like processing fees, prepayment fees, preclosure fees, foreclosure fees, etc.
Select a suitable loan tenure by using the online car loan EMI calculator that is available on the bank website for free. Enter the loan amount, loan tenure, processing fee, and interest rate into the tool and click on the â€˜Calculateâ€™ button. You will get instant and accurate results of your periodic car loan repayment schedule in the form of an amortisation table. Depending on the overall interest payments and the monthly EMI payments, choose a short or long loan tenure so as to minimise the total cost of the loan.
This article has been produced by TNM Marquee in association with BankBazaar.