By northwesternbusinessreview

There was a time when it was a luxury to own a vehicle that not everyone could afford to have. For everybody who could fork out those immense sums of money all at once to purchase their dream vehicle, owning a car was a life achievement. With rising times, shifting demographics and new car loan lenders, owning a car today is no longer a privilege for a majority of the Indian middle class, but actually a necessity made possible by taking a car loan.

Without a car, you can’t imagine living because it would prevent you from creating places for work, duties or recreation, hindering a good social and professional life. But with newer technology and fewer resources, the cost of cars are on a rise, often making it incredibly difficult for the average person to buy their vehicle outright only using ones savings. Therefore, considering the enormous demand for financing both used and new cars, India’s leading loan lenders offer car loans, which are floated items, which allow you to buy your car and pay off the amount of car loans lent bit by bit through EMIs or instalments of car loans.


In India, apart from the problem that paying such a large amount of cash can ruin one’s budget, major liquid cash transactions could also place you on the radar of the Income Tax Department. You continue to maintain your savings for other present and future expenses when you get a car loan to pay for your car. One of the main car loan advantages in India is that the loan is secured against the car itself, so in order to get a car loan, you do not have to borrow your property or other properties. You still get to drive your vehicle when paying the term of the car loan, so you have contributed to your initial savings a few years down the road and have the chance to own the car that paid off the car loan entirely. This gives you the ability to improve the critical credit history by securing a car loan and adhering strictly to the repayment period. A good credit history that includes timely payments and cleared debts can help you get additional loans in the future. Therefore, car loans are a very safe and reliable way of owning your own car.


Car loans are available for not only purchasing brand new vehicles but even used ones. A used car is cheaper on the face of it, so obviously, the necessary car loan sum will be lower, and so will the EMIs for the car loan. But in most situations, a used car needs a higher maintenance expense and there may be extra re-registration costs associated with it, none of which would be covered by the car loan. So, approaching a bank or NBFC for new car loan options is favoured over used car loan options for a vast majority of prospective car buyers. Another consideration is that the acceptance of a car loan for a new vehicle is much quicker.

But purchasing a pre-owned car is still not that bad of an alternative. We mention a few reasons why purchasing a pre-used vehicle via a car loan is also a good deal here:

  • First of all, it is immensely pocket-friendly. It is clear that a second-hand vehicle would cost less, so the financing of the pre-owned car loan would also be a lower amount compared to its equivalent new-car, meaning less monthly payments to pay.
  • The market for second-hand car loans is obviously less than for a new car loan. This is why most banks use car finance as an essential component of their offerings, because these offerings are tailored and added to appear as customer-friendly as possible with additional benefits. A car loan thus offers many features and rebates, but less of the hassle associated with purchasing a new car loan.
  • And the best part, in the case of a pre-owned vehicle, is not based on its current on-road price when selecting models. n the case of a second-hand car of the same make, the money you spend in a new car of a specific model will buy you a higher model at the same money or probably even lower. Plus, the insurance rate of a pre-owned vehicle is smaller, and as compared to new vehicles, the prospect of depreciation is significantly lower. So, when you plan to resell it in the future, you will maintain its original value.


A car loan has a number of eligibility requirements, like any other borrowing tool, which takes your income level as well as your credit score into account. In reality, your credit score (a three-digit number between 300 and 900 included in your credit report) is an incredibly important aspect of your application. In your study, a bad credit score will easily derail your chances of qualifying for a car loan successfully. So, before you start the application process, make sure you have a copy of your credit report to make sure you get through the application process with ease. The following are some main documents that are needed when applying for a car loan:

  • Identity and address proof documents
  • Signature proof document
  • Income proof documents (salary slips/latest form 16/latest acknowledged ITR etc.)
  • Proof of business continuity /job security as per the requirements of the lender
  • Any other documents specified by the lender

This is only a short list of necessary documents and there may be other criteria for documentation stated by the prospective lender.


Various factors, such as the applicant’s income level and credit score, as well as the repayment potential measured by the bank, influence the amount of car loans disbursed. Therefore, while the amount may vary from one lender to another, the penalty for most car loan companies’ amounts to 50 lakhs, with the actual overall disbursement not exceeding 80% of the car’s showroom price.

These loans often feature starting rates as low as 9.65 percent due to the high competition in the car loans segment. However, conditions such as the amount of the loan disbursed, the credit score, the tenure of the loan, previous relationship (existing account / loans) with the lender as well as other considerations are bound to influence the interest rate paid on the application.

The minimum term of a car loan is 12 months and the actual term does not exceed 5 years in the case of most lenders. However, in the event the total loan disbursed reaches a defined level, some lenders do allow car loan tenures of up to 7 years or more.

Note: However, long loan tenure decreases your individual EMI payments; it also raises your absolute pay-out for the entire tenure of the loan, as you pay more interest on the principal.


Key USP Bank Features
Loans for Luxury Car HDFC
  •  Effective interest rate is 8.80 percent.
  •  Tenure is up to 84 months.
  •  Maximum loan amount is up to Rs.3 crore.
  •  100% financing of on-road price for select models
100 percent On-Road Financing ICICI Bank
  •   Effective interest rate starting 8.00 percent onwards.
  •   Tenure is up to 84 months.
  •   The loan amount that can be availed will depend on the model, cost, customer profile, etc.
  •   Pre-qualified and pre-approved customers can avail the offer
Designed for professionals and agriculturalists having no Income Proof State Bank of India
  •   Effective interest rate is 7.70 percent onwards.
  •   Tenure is up to 74 months.
  •   Up to 90% of the on-road price may be financed.
  •   Loan is provided for professionals and agriculturists.
Small Loans Axis Bank
  •   Effective interest rate is 8.85%.
  •   Tenure is up to 96 months.
  •   Up to 100% of the on-road price may be provided as a loan.
  •   You can avail a loan of Rs.1 lakh



The Equated Monthly Instalments (EMI) that you are going to pay would depend on a few main variables. They are:

  • The duration of the loan.
  • The interest rate applicable to the loan.
  • The loan tenure.
  • The processing fees

The higher the value of the loan, the higher your EMI will be. Similarly, the shorter the tenure of the loan, the higher the EMI.