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Before getting a car loan in India, you need to understand what the Indian banks are offering in terms of interest rates and what factors determine interest rates. Here is a detailed guide on the current car loan interest rate in India and the types of interest rates applicable.
CAR LOAN INTEREST RATES
Here are the current car loan interest rates that major banks in India offer:
| SR. NO. | BANK | INTEREST RATE |
| 1 | State Bank of India | 8.75% p.a. onwards |
| 2 | HDFC Bank | 9.40% p.a. onwards |
| 3 | Axis Bank | 9.30% p.a. onwards |
| 4 | ICICI Bank | 9.10% p.a. onwards |
| 5 | Canara Bank | 8.70% p.a. onwards |
| 6 | Federal Bank | 8.85% p.a. onwards |
| 7 | Union Bank | 8.70% p.a. onwards |
( * The interest rates mentioned above are accurate as of July 31, 2024. It is advisable to verify these rates with the respective banks before proceeding with your loan application.)
TYPES OF CAR LOAN INTEREST RATES IN INDIA
Car loan interest rates come in two types:
- Fixed Interest Rate:
- A fixed rate of interest is fixed and non-changing for the term of the loan.
- Thus, it is not affected at all by market fluctuations. This would mean a stable and predictable monthly installments for the borrower.
- Variable Interest Rate:
- Also known as floating interest rate, this changes with the changing financial market trends.
- This type of rate moves up or down during the loan cycle; it influences the principal amount of the monthly payments.
FACTORS AFFECTING CAR LOAN INTEREST RATES
Interest rates on your car loan depend on a variety of factors:
1. Income
- Higher incomes generally mean better lending rates, as they make the banks sure that loans will be serviced in time.
- Salaried individuals tend to get more favorable rates than professionals who are self-employed, but the self-employed can expect better rates if they have a higher income.
2. Tenure
- Longer terms for a loan increase the risk of the money to the lender and, therefore, also increase its interest rate.
- The interest rate paid would be lower with a shorter tenure.
3. Age
- The age aspect is very critical when applying for a car loan.
- The younger borrowers, usually above 21 years old, enjoy lower interest rates compared to older applicants.
4. Relationship with Bank
- The more extended the period a customer has been banking with a given bank, the better their credit record appears and hence ascribed lower interest rates.
- The banks find it easy to evaluate the creditworthiness of a given customer and thus ascribe preferential interest rates.
5. Vehicle
- The vehicle itself forms a security feature guaranteeing the loan.
- New cars from genuine dealers are usually charged at a smaller interest rate than old or second-hand cars, as these downgrade with time.
6. Co-Application
- Having a co-applicant who earns income can further increase the prospects of re-paying the loan and also attract a low interest rate.
- The joint income of both applicants increases the prospects of payback.
7. Employment Type
- Employees of prominent companies might attract higher interest rates for car loans.
- Banks usually maintain a list of approved employers whose employees are seen to be low-risk, primarily because of job security and income stability.
8. Downpayment
- A lower down payment will result in lower interest rates.
- Higher down payments increase the loan amount to be paid and boost repayment capability, thereby becoming a better prospect for the bank to lend.
9. Existing Liabilities and Investments
- Existing loans and liabilities influence the suitability to get a loan and also the interest rates.
- Low existing liabilities borrowers are preferred most by banks. They involve less risk and better cash flow management.
CONCLUSION
Understanding what car loan interest rates are based on can lead to a better bargain. Considering all these factors—be it income, tenure of the loan, age, relation with the bank, type of vehicle, co-application, employment status, down payment, and existing liabilities—you may be in a better position to take an informed decision and get a chance at lowering your interest rates. Whether it is fixed or variable interest rate, being well-informed about the smooth flow of your car loan will surely make it easier for you to maintain it.