Interesting Facts I Bet You Never Knew all about Car Loan

These days owning a car is really important. People consider cars as better than two-wheelers because of the safety and comfort that it gives. There are around 30 million cars in India at present and this number is increasing day by day. Cars are available at a price of a minimum of Rs.1.5 Lakhs and a maximum price of it is in millions. Now, not all people are able to afford a car. Even Rs.1.5 lakhs becomes a huge amount for some people. With this comes the need of car loans. People take car loans to fulfil their dream of owning a car. A car loan can become a solution to many problems of a person.

Almost all private/public sector lenders in India offer car loan options with terms and conditions that are highly customer friendly, affordable and scalable. By qualifying for a very simple list of identity, income and credit history qualifications, you can be the proud owner of your own brand new car. Car loans are available not only for new cars but also for used cars as well. So, if you are planning to buy a second-hand car and there is a shortage of funds then you can easily take a pre-owned car loan subject to the condition that the car is not older than 3 years.

Features and Benefits of Car Loans

Following are the features and benefits of taking a car loan:

  • Loan margin: Most banks offer loans at a margin of a minimum of 15% for new cars. And for old cars, it is 40% of the old vehicle’s valuation cost. Margin means the percentage of the on-road value of the vehicle that will be financed by the bank and the remaining amount would be the down payment that is to be paid by the person who takes the loan.
  • Loan amount: The maximum quantum of car loans available is Rs.125 lakhs for new cars and for used cars it is Rs. 20 Lakhs
  • Loan Tenure: Car loans can be taken for a tenure ranging from 12 months to 84 months. A longer tenure makes it easier to be repaid conveniently. For a used car loan, the maximum tenure is 5 years.
  • Loan partnership with dealers: Car dealers also have a partnership with the banks offering car loans which helps the customers to take convenient loans. Dealers usually have a sizeable margin on new car sales which can come in the form of discounts if properly negotiated. This way you can get additional benefits also.
  • Easy repayment methods: Nowadays it is much easier to pay the EMIs of the loans. One can pay through ECS/Standing Instructions/post-dated cheques. ECS is Electronic Clearing System. It is a mode by which funds are automatically debited to your account to pay a certain bill or fee. It helps because you don’t have to remember the dates of payment of EMIs. It is done only if a standing instruction is given by the customer.
  • Procuring a car loan is way too simple than procuring any other loan
  • Security: The car itself serves as a security to the car loans. In case you default in the payment of the car loan EMIs, then your car would be hypothecated.
  • Interest Rate: The interest rates generally vary between a minimum of 9% to a maximum of 15%.
  • Credit Score: Car loans can help you build your credit score.
  • No prepayment charges: Usually there are no prepayment charges if the loan is adjusted by the borrower from his own verifiable legitimate sources. And if the loan is repaid by taking another loan then there will be prepayment charges.


To avail a New Car Loan, you should be an individual aged 21 to 65 years, belonging to one of the following 3 categories:


To avail a Pre-owned Car Loan, you should be:

  • An individual between the ages of 21-65 years.
  • A Permanent employee of State / Central Government, Public Sector Undertaking, Private company or a reputed establishment or
  • A Professionals or self-employed individual who is an income tax assessee or Person engaged in Agricultural and allied activities.
  • Minimum Net Annual Income of applicant and/or co-applicant if any, together should be Rs. 2,00,000/-
  • The maximum loan amount will be 2.5 times the net annual income.

Documentation for New car loan

  • Proof of identity (any of the following)
  1. Passport
  2. PAN Card
  3. Employee identity card
  4. Any other valid proof
  • Proof of address (any of the following)
  1. Electricity bill
  2. Telephone bill
  3. Aadhar card
  4. Any other valid proof
  • Performa / Invoice
  • Valuation report from approved automobile engineer for old vehicle
  • Proof of income
  1. For salaried class
  1. a) Last one-year ITR
  2. b) Form16 / letter from Employer
  3. c) Last 6 months salary slip
  4. For business class
  5. a) Last three years ITR
  6. b) P & L, Balance sheet
  • 3 photographs
  • Any other document which may be required from case to case

Documents for Pre-owned Car loan

  • Proof of Age, Residence, Identification and Signature (Passport/Voter’s ID/PAN Card).
  • Proof of Income (Salary slips/Form 16/ITR with income computation).
  • Copies of the pre-owned car’s RC Book and Insurance records.
  • Bank statement. Usually, statements for the past 6 months will be required.
  • Passport sized photographs (Minimum 2 nos.)
  • Documentation or deed that establishes the credentials of a proprietorship or partnership firm.


Following are the interest rates of the most popular banks offering NEW CAR LOAN and PRE-OWNED CAR LOAN:


A new car loan can be repaid within a maximum period of 84 months.

Pre-owned car loan can be repaid within 8 years minus the age of the vehicle subject to a maximum tenure of 5 years


  • Hypothecation of vehicle purchased out of Bank’s finance
  • Bank’s lien to be noted with the Road Transport authorities


Car loan EMI calculator helps you to calculate the monthly EMI payment and the total interest payable by just entering the following information:

  • Loan amount
  • Interest rate
  • Loan term

The EMI calculator makes it easy for a person to know in advance as to what amount of total interest he will have to pay.

Pragati Rajoria

Pragati Rajoria

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About Me

I’m a Commerce Graduate & CFP Professional, engaged in blogging since 3 years. I’m not affiliated with any financial product. The purpose of writing blog is to spread financial awareness and help people in achieving excellence for money. Please note that the views expressed on this Blog/Comments are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment advice or legal opinion.

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