A loan that allows you to purchase a car without paying its entire amount from your pocket is termed a Car Loan. The bank pays the money for your car on your behalf. You have to repay the bank a small amount every month. These small payments are called as EMIs. EMIs stands for Equated Monthly Instalment. When you pay EMI, you also pay a little interest to the bank and the principal value. Interest rates vary for different banks.
You should have a good credit score and a stable monthly income to get a loan. These factors must be kept in mind while lending money to ensure you can repay the bank.
Types of Car Loans
There are three types of Car Loans that one can acquire. These include:
- New Car Loan: New Car loan means getting a loan to buy a brand-new car. You can buy a brand-new car from the showroom when you get this type of loan from the bank. The banks offer an interest rate of 9-14% p.a. on new car loans. The tenure of this loan varies between 1 to 7 years. Almost all the models of cars in the market can be bought with this loan.
- Used car Loan: As the name suggests, banks offer you used car loans if you purchase a second-hand car. This loan has a higher interest rate ranging from 12-18% p.a. It is only applicable for cars that have been used for less than five years or which do not reach more than ten years at loan maturity. The tenure of this loan varies from 1 to 5 years. You can get 85% of the money from the bank in this loan scheme.
- Loan against Car: If you need money and get stuck, you can get a loan against your car. This means you can mortgage your car to the bank and money in return. Many banks offer ten lakhs against cars while some offer a complete amount for the car. The tenure of this loan is 1 to 3 years. The interest rate in such cases is 14-15% p.a.
Documents Required to get a Car Loan
You will need a few documents to get a loan from the bank. These documents are:
- Loan Application form
- Identity proof
- Income proof
Sometimes banks do ask for job stability proof.