Eligibility and credit history: Every bank has certain pre-set eligibility criteria which need to be fulfilled by the borrower. For instance, your limit on car loan which can be taken may be linked to your take home salary, and the bank will accordingly increase or decrease the loan amount. It is important to understand your limits before you decide on the car and model. Similarly, banks also check your credit score before sanctioning the loan to you.
Interest rates: This is the most important factor to be considered. As there are several types, variants and models of cars in the market, car loans are also customized according to the car models. Accordingly, interest rates charged also vary depending on the car model, duration and type of the loan (fixed or floating rate). An existing relationship with a bank can get you better interest rates. It is seen that public sector banks generally offer better interest rates compared to their private sector peers in India. Research the various options well, as a small difference in rates charged can make a substantial difference in your total cash outflow over the tenure of the loan.
Other charges: Similar to most other loans, you are charged a processing fee for your car loan. This can either be a flat fee or a percentage which is based on your loan amount. Some banks also charge a late payment fee (which is normally 2% per month of the outstanding amount) if there is a delay in payment of your EMIs. These charges also need to be evaluated carefully.
Foreclosure of car loan: If you wish to part pre-pay your loan or foreclose the same, be prepared to pay hefty foreclosure charges. Also note that some banks like ICICI Bank do not allow you to part prepay the loan. This is an important factor to be checked, as there is every chance that at some point during the tenure of the loan, you find yourself with surplus cash and would want to close the loan.
Package deals: In most cases of car purchases, dealers offer car loans and insurance as a package along with the sale of the car and its accessories. It is definitely convenient to take the loan and insurance from the dealer. However, it is worthwhile to evaluate other options available in the market too. You might be going in for a costlier interest rate or paying higher insurance premium if you opt for the package deal from the dealer. It is usually seen that dealers earn commission if they sell the loan or insurance to car buyers. It is always better to understand the nuts and bolts of what you are getting before making the choice.
Various Car Loan options in the market:
We have analysed car loans for new cars offered by six leading banks in the country on various parameters. It is better to avoid car loans from ICICI Bank as interest rate is high, part pre-payment of the loan is not allowed and maximum repayment tenure is also lower than peers. Similarly, it is better to avoid car loans from Bank of Baroda, as the interest rate charged is higher than other nationalized banks. Among private banks, HDFC Bank car loans can be considered, as you can get good service levels at interest rates comparable to nationalized peers. Among public sector banks, you can look at car loans from State Bank of India or Bank of India, as interest rates are among the lowest in the market. Punjab National Bank can also be considered, although interest rates are slightly more than those charged by SBI and Bank of India.
A detailed comparison is available below, where we have analysed car loans offered by 6 banks for new cars in India. Terms will vary for a higher or lower amount of loan and for financing of second hand cars. Some banks also quote different terms for different models of cars. If you prefer to download the excel file, please click here. For more details, refer to individual bank websites. Kindly note that this analysis covers offerings from major banks only & this is not an all-product comprehensive comparison. The analysis is valid on the date being published.