Introduction

You’ve found the car. Maybe it’s a 7-year-old hatchback from a neighbour, or the new SUV you’ve been saving for. Either way, there’s a gap between what you have and what the car costs.

That’s where a personal loan for car comes in. It isn’t the right tool for every buyer, but in two situations it’s often the smartest one: buying a used car that lenders won’t touch, and covering the down payment on a car loan. This guide shows you exactly when it makes sense, what it costs in 2026, and how to apply online through Ruloans.

What Is a Personal Loan for Car?

A personal loan for car is an unsecured loan you use to pay for a vehicle, fully or partly. The lender doesn’t hold the car as security, so there’s no hypothecation on the RC and no valuation of the car.

A regular car loan is secured against the vehicle. The bank’s name goes on the registration certificate until you repay. A personal loan for car purchase is different: the money lands in your bank account, and you pay the dealer or seller like a cash buyer.

Here’s how it works in practice:

1. You apply based on your income, CIBIL score and existing EMIs.
2. The lender approves an amount, typically ₹50,000 to ₹40 lakh.
3. Funds are disbursed to your account, often within 24–72 hours.
4. You buy the car and register it in your name, with no lender lien.
5. You repay through fixed EMIs over 1–5 years (some NBFCs go to 7).

Because there’s no collateral, interest is higher than on a secured car loan. You’re paying extra for speed, flexibility and clean ownership.

Also Read: Personal Loan for Bike: Get ₹20,000 to ₹5 Lakh for New or Used Bikes

Personal Loan for Car vs Car Loan: Which Is Better?

A car loan is cheaper for a new car because it’s secured, with rates from about 8.15% p.a. A personal loan for car is better when the car doesn’t qualify for a car loan, when you want no lien on the RC, or when you need cash for the down payment.

Sources: lender rate pages and aggregators compiled in Sources below; your actual rate depends on CIBIL score, income and employer.

Also Read: Used Car Loan or Personal Loan… What’s your choice?

Can I Take a Personal Loan for Used Car Purchase?

Yes. A personal loan for used car purchase is often easier than a used car loan because the lender doesn’t care about the car’s age, model, seller or valuation. It only checks your income and credit profile.

Used car loans come with rules. SBI caps used car loan tenure at 5 years, banks typically fund only 70–85% of the assessed value, and many lenders won’t finance cars older than 5–7 years. A personal loan for used car skips all of that.

Also Read: Which bank is best for used car loan?

When Is a Personal Loan for Used Car Better Than a Used Car Loan?

Pick a personal loan for used car when the car is old, cheap, bought from a private seller, or when you need money within a day or two.

• The car is 7+ years old. Most used car loan schemes reject it or offer a very short tenure.
• You’re buying from a private seller. Lenders prefer certified dealers; private sales mean extra paperwork and inspections.
• The car costs under ₹3 lakh. Processing a small used car loan isn’t worth it for many banks, so you’ll see higher rates anyway.
• The deal is time-sensitive. A good used car sells fast. Pre-approved personal loans can disburse within hours.
• You want a clean RC. No hypothecation means no NOC hunt when you sell later.

When Should You Choose a Used Car Loan Instead?

Choose a used car loan when the car is under 5 years old, comes from a certified dealer, and your rate offer is at least 1–2% lower than your personal loan quote.

Here’s a real comparison for a ₹5 lakh used car over 5 years:

EMIs are calculated on a reducing balance; processing fees and insurance are excluded.

Also Read: 4 Reasons Which May Be The Reason Of Your Used Car Loan Rejection

Can I Use a Personal Loan for Car Down Payment?

Yes. A car down payment loan is simply a personal loan used to pay the 10–20% upfront amount that your car loan doesn’t cover. It’s legal and common, but you’ll carry two EMIs at once, so lenders check that both fit within roughly 50–60% of your monthly income.

Most banks fund 80–90% of the on-road price on a new car loan. On a ₹10 lakh car, that leaves ₹1–2 lakh to pay yourself. If your savings are locked in an FD or you’d rather keep an emergency fund, a car down payment loan bridges that gap.

How Much Does a Car Down Payment Loan Cost?

On a ₹10 lakh new car, a ₹2 lakh car down payment loan at 13% for 3 years adds about ₹42,600 in interest and raises your total EMI to ₹23,346 for the first 3 years.

All figures use reducing-balance EMI; fees, insurance and GST on fees are excluded.

Is a Car Down Payment Loan a Good Idea?

It’s a good idea if your combined EMIs stay under 40% of take-home pay and you can close the personal loan within 2–3 years. It’s a bad idea if it stretches your budget just to buy a pricier variant.

Use a car down payment loan when:

• Your salary is stable and the combined EMI is comfortable.
• You want to keep savings liquid for emergencies.
• A festive or year-end discount makes waiting costly.

Avoid it when:

• You’d need to skip other savings to manage both EMIs.
• Your CIBIL score is below 700; you’ll pay 16%+ on the personal loan.
• You’re borrowing to upgrade beyond what you’d planned.

One honest tip: keep the car down payment loan tenure short. A 2–3 year tenure keeps interest low, and the extra EMI drops off well before the car loan ends.

Also Read: 7 Most Common Car Loan Mistakes to Avoid

Personal Loan for Car Interest Rates in 2026

In October 2026, a personal loan for car starts at around 9.99%–10.90% p.a. at major banks and can go above 24% for weaker profiles. New car loan rates start near 8.15%, and used car loan rates start near 10.50%.

Rates are indicative, compiled from lender and aggregator pages listed in Sources; your final rate depends on CIBIL score, income, employer and loan amount.

Also Read: SBI vs HDFC vs ICICI Personal Loan – Interest Rate & Eligibility Comparison 2026

How Does the October 2026 Repo Rate Hike Affect Your Car Loan?

The RBI raised the repo rate by 25 bps to 5.50% on 7 October 2026, its first hike since February 2023. Floating-rate car loans linked to the repo rate may cost more within a quarter; most personal loans for car are fixed-rate, so your EMI stays locked once you borrow.

Two practical points:

• Lock in a fixed rate early. Several economists expect another hike in December, so today’s personal loan quote may be lower than next quarter’s.
• Prepayment rules differ. Since 1 January 2026, RBI bars prepayment charges on floating-rate loans to individuals for non-business use. Fixed-rate personal loans can still carry foreclosure fees, so check the Key Facts Statement.

Also Read: Interest Rates Hiked? Be prepared in Advance with these steps!

Personal Loan for Car EMI: ₹1 Lakh to ₹10 Lakh

A ₹5 lakh personal loan for car costs ₹10,871 a month at 11% for 5 years, or ₹12,159 at 16%. Every ₹1 lakh borrowed adds roughly ₹2,170–₹2,430 to a 5-year EMI, depending on your rate.

EMI formula used: EMI = P × r × (1 + r)^n ÷ [(1 + r)^n − 1], where r is the monthly rate and n is the number of months.

Also Read: Lowest EMI Personal Loan for ₹5 Lakh – Compare & Apply

How Much Personal Loan for Car Can I Get on My Salary?

Most lenders let your total EMIs reach about 50% of net monthly income. With no existing EMIs, a ₹50,000 salary supports a personal loan for car of roughly ₹11.2 lakh at 12% over 5 years.

These are illustrative ceilings. Subtract any existing EMIs first, and expect banks to apply 40–60% FOIR depending on your income band and employer category.

Also Read: ₹10 Lakh Personal Loan: Salary Needed & Eligibility 2026

Personal Loan for Car Tenure: 3 Years or 5 Years?

A shorter tenure saves interest; a longer one lowers EMI. On ₹5 lakh at 11%, a 3-year term costs ₹89,297 in interest versus ₹1,52,273 over 5 years, a saving of ₹62,976.

Cars lose value every year, so try not to be paying for a car long after it’s lost most of its worth. For a personal loan for used car, 3 years is often the sweet spot.

Personal Loan for Car Eligibility

You’re generally eligible for a personal loan for car if you’re 21–60 years old, earn a steady income (often ₹15,000–₹25,000 a month minimum), have a CIBIL score of 700 or above, and your total EMIs stay within about 50% of income.

Criteria vary by lender; these ranges reflect common bank and NBFC policies.

Also Read: Why Was My Personal Loan Rejected Even with a Good CIBIL Score?

What CIBIL Score Do You Need for a Personal Loan for Car?

A 750+ CIBIL score typically gets you sub-12% offers from large banks. Between 700 and 749 you’ll still qualify, usually at 12–16%. Below 700, expect NBFC offers at 16%+ or a request for a co-applicant.

Also Read: How to Improve Your Low CIBIL Score From 500 to 750

Documents Required for a Personal Loan for Car Purchase

You need PAN, Aadhaar, 3 months’ salary slips and 6 months’ bank statements if salaried. Self-employed applicants add 2 years’ ITR and business proof. No car documents are needed for a personal loan for car purchase.

Salaried applicants

• PAN card and Aadhaar card (KYC)
• Last 3 months’ salary slips
• Last 6 months’ bank statements (salary account)
• Form 16 or employment ID, if asked

Self-employed applicants

• PAN card and Aadhaar card
• Last 2 years’ ITR with computation of income
• Last 6–12 months’ bank statements
• Business proof: GST registration, Udyam certificate or shop licence

Compare that with a used car loan, which also needs the RC copy, insurance, a valuation report and the seller’s documents.

Also Read: Personal Loan for Salaried Employees: Apply Now with Documents Checklist by Employer Type

How to Apply for a Personal Loan for Car Online

Share your basic details on Ruloans Personal Loan, compare matched offers from 275+ banks and NBFCs, pick the lowest-cost one, complete KYC with that lender, e-sign after reading the KFS, and receive funds in your bank account, often within 24–72 hours.

1. Check your eligibility. Enter your income, employer, city and the amount you need for your personal loan for car.
2. Get matched. Ruloans shortlists banks and NBFCs from its 275+ partners whose criteria fit your profile.
3. Compare offers. Look at the interest rate, processing fee, tenure and APR side by side.
4. Complete KYC. Upload PAN, Aadhaar, salary slips or ITR, and bank statements to the chosen lender.
5. Review and e-sign. Read the Key Facts Statement, check foreclosure terms, then sign digitally.
6. Receive funds. The partner lender disburses to your bank account; you pay the dealer or seller directly.

The partner bank or NBFC sanctions and disburses the loan. Ruloans supports you from application to disbursement, so you’re never chasing paperwork on your own.

Check your personal loan eligibility today: Compare offers from 275+ banks and NBFCs on Ruloans

Also Read: Best Instant Personal Loans in India 2026: Interest Rates Compared

Hidden Costs of a Personal Loan for Car

Beyond interest, budget for a processing fee of about 0.5%–4% plus 18% GST, possible foreclosure charges on fixed-rate loans, and late-payment penalties. On a ₹5 lakh loan, a 2% fee alone is ₹10,000 plus ₹1,800 GST.

• Processing fee: Banks often charge 0.5%–2.5%; some NBFCs go up to ~4%.
• Foreclosure/part-prepayment fee: Common on fixed-rate personal loans (often 2%–5% of the outstanding amount). Floating-rate loans to individuals can’t carry this fee for loans sanctioned on or after 1 January 2026.
• Insurance add-ons: Credit-life cover is optional; you can decline it.
• Car-side costs: Registration, RTO transfer for used cars, and comprehensive insurance aren’t covered by the lender unless you borrow extra.

Always read the Key Facts Statement (KFS). It shows the Annual Percentage Rate (APR), which includes fees, so you can compare offers fairly.

Also Read: Is prepaying your Personal loan a good idea?

5 Mistakes to Avoid With a Personal Loan for Car

Don’t skip comparing offers, don’t stretch the tenure on an old car, don’t ignore the APR, don’t apply to many lenders at once, and don’t borrow more than the car plus transfer costs.

1. Taking the first offer. A 2% rate gap on ₹5 lakh over 5 years is roughly ₹30,000 in extra interest.
2. Matching a long tenure to an old car. A 5-year loan on a 9-year-old car means paying EMIs on a vehicle that may need major repairs.
3. Looking only at the interest rate. A low rate with a 4% processing fee can cost more than a slightly higher rate with a 1% fee.
4. Multiple applications in a week. Each hard enquiry can dent your CIBIL score; compare through one platform instead.
5. Forgetting the paperwork for a used car. Verify the RC, insurance, challans and any existing loan on the car before paying the seller.

Also Read: Beware of these 4 mistakes while taking a Used Car Loan

How to Get the Lowest Rate on a Personal Loan for Car

• Raise your CIBIL score above 750 and keep credit-card usage under 30% of the limit.
• Check pre-approved offers from your salary-account bank first.
• Borrow only what you need; a smaller car down payment loan keeps total EMIs low.
• Choose the shortest tenure you can comfortably afford to cut total interest.
• Negotiate the processing fee and check foreclosure charges before signing.
• Apply around festive offers, but compare the final APR, not the headline rate.

Also Read: How do you Ensure Low Interest Rates for a Personal Loan

Pros and Cons of a Personal Loan for Car

The main benefits are 100% funding, no collateral, fast disbursal and a lien-free car. The main drawbacks are a higher interest rate, a shorter tenure (higher EMI) and a lower maximum amount than a car loan.

Conclusion

A personal loan for car gives you the freedom to buy the car you want, new or used, from a dealer or a private seller, with full ownership from day one. It’s flexible enough to cover the entire price, just the down payment, or extras like insurance and registration. The key is getting the right rate for your profile.

Ruloans is a financial distribution company working with 275+ banks and NBFCs. With Ruloans, you compare offers in one place, choose the lender with the lowest interest rate for you, and get complete support from application to disbursement.

Check your personal loan eligibility today. Apply for a personal loan for car on Ruloans and drive home your car sooner.

FAQ

In this blog, we’ll break down what a zero down payment car loan is, its benefits, eligibility criteria, required documents, and whether it’s genuinely worth it for your financial situation.

What is a Zero Down Payment Car Loan?

The entire cost of the car you wish to purchase is borrowed from the lender. When buying any car, you are usually expected to pay a certain amount of money upfront as down payment, which ranges between 10-20% of the value of the car. But with a zero down payment loan, you can quickly drive home your new wheels without making any such expenditure at the start. Instead, you will be repaying 100% of the price of vehicle through monthly instalments which may be slightly higher than loans with down payments.

Can We Make a Zero Down Payment on a Car Loan?

Yes, you can do a zero down payment on a car loan. However, whether it is available or not would depend on the lender and your financial profile. We at Ruloans work with multiple lenders pan India that do offer zero down payment options if you meet their eligibility criteria (which would be factors such as your credit score and income). You can check offers from multiple lenders using our Ruconnect App, compare terms and even apply for car loan options instantly!

Benefits of Zero Down Payment Car Loans

1. No Upfront Payment

Zero down payment car loan is better mainly because, you do not have to part with any savings in order to drive home in a new car. This is perfect for people who don’t have the upfront cash for down payment yet, need the vehicle immediately.

2. Preserving Liquidity

You don’t have to touch your savings – Since you are not required to pay a lump sum upfront, your savings remain untouched for other important financial obligations, investments or emergencies.

3. Easier Access to New Cars

If you’re in the market for a new car and fall short on the cash needed for a down payment, this loan takes an auto-financing path to ownership that wastes no time.

4. Flexible Loan Terms

Many lenders provide an opportunity for flexible loan repayment tenures and also offer no money down car loans that you may select the loan duration which best fits your monthly budget.

Eligibility Criteria for Zero Down Payment Car Loans

To qualify for a zero down payment car loan, lenders usually evaluate a few critical factors, such as:

• Age: Typically between 21 to 65 years.
• Income: A minimum monthly income of around INR 20,000.
• Credit Score: A strong credit score (usually 650 and above) can improve your chances of getting favorable terms.
• Employment Stability: Lenders prefer applicants with stable employment or a consistent source of income, whether you’re salaried or self-employed.

Through Ruloans’ Ruconnect App, you can quickly check your customer’s eligibility for a car loan and see instant offers from lenders.

Documents Required to Apply for a Zero Down Payment Car Loan

When applying for a zero down payment car loan, you will need the following documents:

• KYC Documents (Valid Photo ID Proofs)
• PAN Card
• Last 2 Years’ ITR (for self-employed individuals)
• Salary Slips (Last 3 months, for salaried employees)
• Bank Account Statement (Last 6 months)
• Signature Verification Proof

Our Ruconnect App streamlines the process, making it simple to upload these documents and track the progress of your application.

Is it Worth Taking a Zero Down Payment Car Loan?

Zero down payment car loans can be worth it if:

• You urgently need a car but don’t have savings for a down payment.
• You have a good credit score that can help you secure favorable loan terms.
• You are financially prepared for higher monthly payments and interest.

However, if you’re looking to minimize long-term financial strain, a traditional auto loan with a down payment may be a better option. Making a down payment reduces your loan amount, lowers your monthly installments, and saves you money on interest.

Final Words!

A zero down payment car loan can be a good option if you need a vehicle pronto and don’t want to touch your savings. However, you should first evaluate your financial ability to manage higher monthly payments and shop around for better loan deals. At Ruloans, we help you do just that. Applying for the right auto loan through our extensive list of lenders is easy, thanks to our user-friendly Ruconnect App. You can also enlist the services of a dsa loan agent to simplify the process of applying for an auto loan. A car loan DSA connects borrowers with lenders and aids in finding the most suitable financing options available in the market. Applying for auto loans? Alternatively, consider becoming an auto loan DSA by registering with Ruloans’ auto loan DSA registration and earn lucrative commissions by helping others access easy financing.

Explore your options today with Ruloans, and drive home your dream car with the loan terms that suit you best!

Let’s dive in to explore how car loans can help build your credit score and the factors involved.

Can buying a car help improve your credit score?

Yes, buying a car can boost your credit score, but only if you take out the loan responsibly. When you apply for a car loan, you’re entering into a financial agreement that directly influences your credit report. A car loan typically impacts your credit score in two main ways: initially through a hard inquiry and over time through credit history.

What Effect Do car loans have on your credit score?

When you apply for a car loan, two predictable things will happen:

1. A Hard Inquiry on Your Credit Report: When a lender checks your credit for loan approval, it results in a hard inquiry, which can temporarily knock a few points off your credit score. Similarly, if you refinance your car, the same effect can occur.
2. Building Credit History: Taking on a car loan adds to your credit history. And if you make payments on time, a car loan can improve your credit score. The slight drop that results from the initial inquiry is generally counted off by the benefit of good payment performance in the long run.

How Car Loans Impact Your Credit Score: A Detailed View

Let’s take a closer look at the various aspects of how a car loan can both positively and negatively affect your credit score.

1. Impact During the Approval Process

When you apply for a car loan or get preapproved, lenders will look at your credit history. This is considered a hard inquiry and may cause your credit score to drop temporarily. The decrease is typically minimal and lasts only a short period of time unless you make several applications in a small timeframe: the fewer hard inquiries, the less of an impact on your credit score.

2. Timely Payments Are Crucial

Once your car loan is approved, the most critical factor influencing your credit score is your payment behavior. Making consistent and timely monthly payments on your auto loan shows lenders that you’re a responsible borrower. Every on-time payment you make is reported to credit bureaus, which helps improve your credit score over time. Conversely, late payments or defaults can severely damage your credit score, making it difficult to secure future loans.

3. Positive Impact of Loan Repayment

The more payments you make on time, the better it is for your credit score. When you successfully pay off a car loan, you demonstrate that you know how to manage debt responsibly, and this puts lenders at ease when it comes time to borrow money in the future. It can help you qualify for better interest rates and terms on other loans down the road, too.

4. Enhancing Your Credit Mix

A healthy credit mix is essential for building a solid credit score. Lenders prefer to see borrowers with diverse types of credit, such as installment loans (like a car loan) and revolving credit (like credit cards). Adding a car loan to your credit profile can positively influence your credit mix, signaling to lenders that you’re capable of managing different types of debt.

5. Long-Term Impact on Your Credit

The length of your car loan can also affect your credit score. A long-term loan might initially increase your credit utilization ratio, which could lower your score temporarily. However, as you consistently make payments and reduce the loan balance, the negative impact will decrease, and your score will gradually improve. Over time, the regular payments will contribute more positively to your credit history than any short-term impact from the loan’s approval.

Is Car Loan a Better Way to Build Your Credit Score?

A car loan can help you build your credit when you manage it responsibly. Here’s how it works:

• On-Time Payments: This is the best suggestion which can help you build your credit score with a car loan- just try to pay down all dues on time. Payment history is the main factor in calculating your credit score, and making timely payments can increase it.
• Length of Credit History: The longer you keep your car loan and continue to make regular payments, the better it is for your credit history — which is another major factor used to calculate your credit score.
• Credit Mix: Adding a car loan to your credit portfolio helps in diversifying the type of credits you deal with and thereby increase your credit worthiness overall.

Final Words!

A car loan is not just about getting you a vehicle but it does go a long way in building your financial reputation as well. Through responsible borrowing and timely payments, you can actually enhance your credit score which will work to create a strong credit profile for your future financial needs.

At Ruloans, we are dedicated to helping you succeed. Whether you are interested in applying for a car loan or would like to partner with us as Car Loan DSA or Auto Loan DSA, we facilitate you with the suitable set of tools, associations and support necessary to prosper. Being functional in 4000+ cities and having distributor strength of 350K+, Ruloans is India’s leading player for loan distribution.

Basics of Auto Loan Terms

An auto loan term is the amount of time you agree to pay back your loan. Terms can range anywhere from 24 months to 84, and usually have different interest rates and monthly payments. Here’s what each term does:

• Short-Term Loans (24-48 months): These loans will have a higher monthly payment, but their interest rates are lower thus you will be able to get your car paid faster with a reduced amount of interest over time.
• Long-Term Loans (60-84 months): Long-term loans come with lower monthly payments that can fit within your budget, but they also usually have higher rates and cost you more over the long term.

How to Choose the Right Auto Loan Term for Your Budget

1. Assess Your Monthly Budget

Before you decide the term of an auto loan, it’s important to take a look at your monthly budget. Figure out how much money you can spend each month on the loan without stretching your budget too thin. Make sure to consider other costs associated with having a vehicle like insurance, maintenance, gas, and unexpected expenses.

Tip: Use the 20/4/10 rule as a guide. Put down at least 20 percent of the purchase price, finance for no more than four years, and keep total monthly vehicle expenses — including principal, interest and insurance — below 10 percent of your gross income.

2. Consider the Total Cost of the Loan

As tempting as it could be to choose a loan term based solely on the low monthly payment, it’s important to remember that the longer the loan term, the more you could end up paying in interest alone – despite the loan’s low interest rate.

A 60 month loan may have a lower monthly payment than a 36 month loan, but you will likely pay much more in interest over the five years versus the three.

3. Align with Your Financial Goals

Think about why you are getting a car loan and how that debt fits into your long-term financial planning. If you intend to keep the vehicle for many years, then taking on a longer term loan may be appropriate. However, if you intend to upgrade your vehicle in a few years, then a shorter term loan may be beneficial

Future Considerations: If you expect your circumstances to change in the future due to increased income or other factors, find out if the loan term chosen can be adjusted to meet your needs going forward.

4. Take Advantage of Ruloans’ Auto Loan DSA Opportunities

At Ruloans we present you more than loans. As an auto loan DSA Agent, earn handsome on time commissions (payouts) on the disbursal amount. Our Ruconnect App, India’s 1st B2B Loan Distribution Channel Partner App makes registration easy for a seamless experience and faster approval.

Ruconnect App Features: KYC and Document submission in a concise manner for registeration, DSA partners to claim online payouts, real-time application tracking, and refer customer CIBIL among others.

5. Shop Around for the Best Rates

Ruloans has tied up with 275+ top notch banks, NBFCs and insurance companies to ensure that you will get accurate bank interest rates and timely results. By using our vast network of resources, you can get the best loan or insurance deal that fits your budget perfectly.

Credit Score Impact: Having a higher credit score can help you obtain a lower interest rate, which then you are able to afford a shorter loan term with less total interest paid.

6. Factor in Depreciation

Cars depreciate, which means they lose value the older they get. If you finance the vehicle for too long, you increase your risk of becoming upside down on the loan — this is when you owe more than what the car is worth. To protect yourself from this happening, choose a loan term that is appropriate with how quickly the car will lose value and with what you can afford to pay back.

7. Utilize Ruloans’ Resources

Ruloans has many tools to help you make the right decisions, from auto loan term calculators to expert answers, we are here to help you at every step. We value our customers and loan agents as much as we do our cars.

Final Words!

Choosing the right auto loan term depends on how much you can afford to pay each month and your overall financial goals. With a number of loan options, competitive rates, and the backing of India’s biggest loans distributor at your disposal, Ruloans can get you in a new ride or allow you to apply for auto loan on your own terms. For those interested in becoming a loan agent, you can apply online for auto loan or explore our auto loan DSA opportunities.

Car loans allow you to drive a car home at meagre upfront costs, attracting many people. They end up making some mistakes, and it is good if you can avoid them. So let’s explore seven mistakes people make when they take a car loan.

Seven Common Car Loan Mistakes

• Borrowing More

Everyone dreams of owning a big car, but big cars also cost a lot more. Due to their high costs, if you make the decision to buy a big dream car, you’ll surely end up borrowing more.

Not only is borrowing more a bad thing, but it also makes your finances tumble in the long run. When you approach a dealer, they’ll try to convince you to borrow more by providing lesser interest rates and other offers, but you should never go on to borrow more. While this does not happen in refinancing where you only get a portion of your car’s market value as loan when you offer it as collateral, it can cause serious issues to people buying new cars. 

Avoid this mistake once, and you’ll be proud of your decision in the years following your car purchase.

• Not Having A Budget

When you start looking for a car, having a budget will help a lot. Whether you are buying a new car with all the tech and gimmicks, or you buy a used car that get’s your work done, always have a budget. Without a budget, you’ll wander aimlessly across dealership floors, looking at different vehicles without any choice or goal.

Before you step into a dealership, having a defined budget will help you make the right choice. If you keep a budget, you’ll have a budget within which you can look for the best options. Moreover, this will also stop you from borrowing more than you need.

• Elongated Payback Period

Many times in the search for lowered EMIs, people opt for longer payback periods. While taking a car refinance loan, you should not make this mistake. Refinancing allows you to get money when you put your car as collateral, and it is quite common nowadays. You can have a temporary adjustment for buying a used car, and once the car is at home you can apply for refinancing. Car loans have yearly interest rates; the longer the payback period, the more interest you pay. Suppose you have a car loan with a flat rate of 7% per year, and the loan goes off for five years. You’ll end up paying 35% more on the amount that you loaned.

If you cannot finish your car loan in less time, try to pay more as a downpayment and reduce the total loan amount required. Another way to avoid this is by waiting for times when the interest rates are lowest or when you have enough money to pay the loan faster. In case you are refinancing, you are already having a car that is depreciating faster, so having a longer payback period will always harm you.

• Less Research

Less research is a big mistake that first-time car buyers make. They come across a dealer who usually charges more on car loans and end up trusting them. This results in an awful ownership experience as you pay more money in the loan’s interest. 

Before you take out a car loan, it is important to understand car loan pros and cons, where you stand, and what your needs are. The research will help you avoid fraud and provide you with the best car buying experience. Even while refinancing your car, you should explore all the possible solutions in the market to get the best refinance interest rates. Today, there are tons of websites and apps where you can search for your research and compare different loan providers.

• Not Understanding Your Credit History

A deep and thorough understanding of your credit history is crucial to getting the best car loan. Whether you apply car loan online or offline, it will only get approved if you have an excellent credit history.

You may have a credit rating above 750 or 800; if you don’t know that, you might miss out on some excellent loan offers and benefits. Moreover, checking your credit history can help you negotiate better interest rates and eliminate any unknown liabilities on your credit history.

Incase you are going for a refinance loan, you should check on the credit history to ensure that there aren’t major dues that are standing, and only then go for a refinance loan for your used car. 

• Adding Unnecessary Overheads

A car loan itself is pretty costly, and when you add more to it, the outcomes are miserable. Taking out more loans to add features to your car is one of the biggest mistakes. While the features may mean the world to you, you won’t get any return on them when you sell the car after some years.

If you want to do extra things to personalize your car, make sure that you do it with your saved money and not by opting for a bigger loan amount.

• Underestimating Pre-approved Loans

Pre-approved loans are often underestimated. Due to the constant bombarding of promotional pre-approved loans, people don’t care to look further if they have any pre-approved loans or not.

Getting a pre-approved loan from your primary account’s bank will do wonders. It will provide you with the best rate and an even better and flexible payback period. Before you apply for a car loan, always check whether you have any pre-approved loans sitting idle or not. Availing pre-approved loans is hassle-free, you can get the best rates, and you can even negotiate further. If you avoid these seven mistakes, you can enjoy long drives in your car without any issues. So keep them in mind before you finalize a car loan.

You can buy a good second-hand car through a used car loan. You can get a used car loan at attractive interest rates, and the repayment tenure can stretch to seven years. You will also find some lenders providing 100% loan of the car’s value. Most NBFCs and banks provide used car loans. 

There has been a rise in car loan demand since the pandemic. The need for a used car loan has increased from the pre-pandemic levels. The requirement for personal transportation has been growing since the pandemic hit. 

Benefits & Features of A Used Car Loan

With a rise in car loan sector, here are a few benefits and features of a used car loan:

• Your monthly EMIs might be lower as a used car loan amount would be lower compared to a loan for a new car. 
• The repayment tenure is long.
• Paperwork submission is minimal.
• NBFCs and certain banks are flexible in payments
• The depreciation rates and insurance costs are lower compared to new cars
• Certain NBFCs and banks offer up to 100% car refinancing
• The loan process is simple

Things to Remember 

There has been an increase in the used car loan space due to the pandemic. People opt for personal transportation because they fear catching Covid from others. Buying a new car can be expensive, and that’s where a used car comes in. You can get a used car for much less than a new one. Here are a few things you should remember when you look to buy a used car: 

Properly Check the Car

Ensure to thoroughly check the car and take a mechanic’s help if necessary. You can negotiate the car’s price if there is any issue with the used car. Check for vibrations by driving in a secluded area. 

Thoroughly Check the Papers

Check the registration certificate and insurance papers thoroughly. Ensure that the chassis and engine number match the number on the documents. 

History of the Vehicle

Check the vehicle’s history before purchasing it. You can find many details online. You can see if the vehicle was involved in an accident or service issues. 

Transfer the Registration Certificate

Ensure you transfer the RC to your name once you purchase the car. A NOC will be required if the car is registered in another state. A NOC is also required if the previous owner purchased the car on loan. 

Insurance Transfer

It would be best if you immediately transferred the car insurance policy to your name. The policy will be considered void if it is in the previous owner’s name. In this case, it will not matter if the RC is in your name. 

Car Service

Get your car serviced before you start using it. Fix rusts, if any, and change the fluids before cleaning the car up thoroughly. 

How to Apply for a Used Car Loan

• Visit the NBFC office or bank branch where you want to avail of the loan
• Fill out the application form
• Check your eligibility and submit the necessary documents
• Discuss the processing fee, interest rates, etc. to process the loan

FAQs

Q1. Should you make a down payment in case of a used car loan?

A1. You might have to make a down payment to certain lenders when you avail of a used car loan. It depends on an individual lender and their terms and conditions. 

Q2. Do you have to provide collateral or security when you avail of a used car loan?

A2. No, you don’t, as the car acts as the security. You need not provide collateral or any other security. 

Q3. Can you avail of a used car loan with a co-applicant? 

A3. Yes, you can.

Q4. Can you get a used car loan with a low credit score? 

A4. If your credit score is low, your application might be rejected. In other cases, you might have to pay higher interest rates. 

While most of us are aware that we can get finance easily while purchasing a used car. But an interesting part which most of us don’t know is we can also Re-Finance our existing vehicle or in simple terms, we can get money by hypothecating the car that we already own.

The rate of interest for applying for a used car loan in India is approximately as low as 12%-16%. Based on the borrower’s credit rating, he can take up a car loan for 90% to 100% of the car’s market price while he is buying a used car. Nowadays many public sector banks in India also provide used car loans at an affordable rate of interest. However, while applying for a used car loan, it is critical to check availability and make the necessary safeguards.

However, in certain situations, refinancing your car would be a better option. Refinancing an automobile makes absolute sense when one needs a loan for a shorter tenure for business purposes or for personal use. It is generally cheaper than a Business or a Personal Loan. Also, you can get up to 200% of the car’s value. Refinancing your car is not advisable, if you’re underwater on your current loan, just acquired a new automobile, or your current loan involves prepayment penalties.

What Are the Different Factors Determining the Interest Rate of Loans?

Lenders constitute different interest rate slabs for used car loans depending on the following factors:

1. Credit Score

A credit score is an important factor that can determine the interest rate of your used car loan is your credit score. A healthy credit score indicates that there is no risk of lending you money since your record shows you have been making timely payments as per your score. To have a lower rate of interest on a car loan, it’s suggested to maintain a good credit score.

2. Relationship With The Lender

It’s important to maintain a good relationship with your lender in terms of transactions as well as payments. Since they might notify if they are offering used car loans at a cheaper rate of interest. Therefore, before approaching any other lender for a used car loan, make sure to consult your existing lender.

3. Repayment Tenure

The tenure of your used car loan will have a great impact on your rate of interest. The individuals opting for a longer tenure, their EMIs would be comparatively lower but they are entitled to pay a high rate of interest throughout the loan tenure. On the other hand, EMIs are higher but the interest rate is low in shorter tenure.

4. Amount Of Loan

The amount taken for a used car loan affects the rate of interest charged on the car loan. Opting for a higher amount of loan might provide you with a lower rate of interest and vice versa. This varies from one lender to the other.

5. Income

The individuals having income on the higher side might enjoy the advantages of a low-interest rate since a high amount of income indicates a good capacity to repay your debt.

6. Age & Model Of The Car

With a used car loan, the vehicle serves as security for the duration of the loan. If a borrower defaults on a loan, the bank will keep the vehicle to cover the outstanding debt. As a result, while deciding the interest rate, banks consider the car’s age and model. Remember that newer cars from reputable manufacturers have a higher resale value than older models. The interest rate for used or pre-owned car loans is higher than on new car loans. This is due to the fact that antique cars deteriorate with time and use.

Where Can I Get The Best Deal On Used Car Loan?

Ruloans is the place to go if you want to own the car of your dreams. Having well-known Banks and NBFCs as our partners, we offer you affordable finance as a used car loan. Some of our partners even offer you 100% finance. You may choose and compare used auto loan offers from the market’s top lenders. Get access to the best prices available with hassle-free processing, minimal documentation and instant disbursal.

About Ruloans

Ruloans is India’s leading financial products distribution company that helps manage your financial needs be it Home Loans, Personal Loans, Loans against Property, Business Loans, Auto Loans, Credit Cards, Balance Transfers, and many more. Our vision is to be recognized for value creation, transparency, and the largest distribution capabilities in the financial industry. We also have an exclusive DSA Partner Program for several professionals to leverage their skills and make the most benefits. Ruloans is present across 1200+ locations with over 7000 employees, consultants, and referral partners. Ruloans association with ~150 financial institutions including banks, NBFCs, and Fin-tech gives a wide choice for customers to choose from. We help you borrow right.

Example:

Mr Sharma wishes to purchase a second-hand vehicle from Hyundai whose cost is 1.5 lakh rupees. He searches online for various Banks and NBFCs that are offering pre-owned/second-hand car loans for good deals and offers. He finally applies via Ruloans to find the best deals. After contacting Ruloans, he gets to know that he can actually get up to 3 lakh rupees as the loan amount. This means he can not only purchase the car but also get the insurance, maintenance and other costs sorted too.

Primary Features of a Used Car Loan:

• Flexible tenure which can go up to 84 months (7 years)
• Maximum loan to car value ratio which can go up to 200%
• Lower rate of interest when compared to personal, home and business loans.

Primary Eligibility for a Used Car Loan:

• You must be aged above 21 years and up to a maximum of 65 years*
• The car which you want to purchase must not be older than 8-10 years*.
• You must be a salaried employee or a self-employed professional / businessman.
• Your total work experience or business existence must be a minimum 1 year.

So getting a pre-owned car loan gets very easy as you just need to fulfil the basic eligibility towards the bank and that will help you apply for the loan with ease.

Importance of loan/credit card bill repayment history:

If you have ever applied or thought of applying for any kind of a loan, then you know the importance of your credit score and credit history. If it’s on the higher side, Banks will always give you good deals and offers. If it’s on the lower side, you will always have to pay a higher interest amount as you are not reliable as per the lender.

Ruloans provides the best deals to those who always pay their dues on time and pay in full. If you have ever used a credit card or taken a loan and have paid all your dues on time, then we can help get you the best deals available in the market.

If your loan/credit card bill repayment history for minimum 12 months is clean and without any default then we can help you get more than 100% of the used car’s value as the loan amount. If your repayment history is clean for over 18-24 months*, then Ruloans can help you get up to 200% of the used car’s value as the loan amount.

So if you pay your bills on time, getting up to 200% as the used car loan amount is possible via Ruloans. Apply today to get the best offers.

Picking the right type of car loan can be a difficult task. But knowing what is required according to the type of car purchased will always help a borrower make the correct decision. Here are a few tips to help borrowers zero in on the best deal.

• Select a Car that you can buy:
  As a thumb rule, borrowers should choose a car loan that suits the model of the car purchased and also according to the repayment capability of the individual.

• Higher loan value for salaried employees:
  Salaried employees can get higher loan amounts based on their annual income, with banks approving loans based on that amount. So, individuals should choose a loan that offers them the maximum quantum of loans.

• Loan Margin: Certain factors like down payment amount and loan margin also should be considered. A higher down payment amount would help a borrower save on interest rates and also complete his debt sooner than expected.

• Interest rate type: As far as interest rates are concerned, floating interest rates work well for a borrower, as market fluctuations and rate reductions might be beneficial in the long run.

• Loan Coverage: Banks generally offer loans up to 80% or 90% of the vehicle value. This might vary on an individual basis and also on the type of car buying.

• Flexible tenures: While choosing the tenure of the car loan, borrowers must ensure that the bank offers flexible tenures, which can be altered if part payments are done.

• Other Charges: Other types of charges that are levied along with a car loan like processing fees, documentation fees, prepayment fees, etc., should also be evaluated before confirming the required deal.

Car Loan Application Process

The entire process of applying for a car loan has been simplified by the banks for the ease of the borrowers. The entire process of the application works in the following way:

• Form fill up– Fill out the form with all the vital particulars such as their details and other required credentials.
• Document verification– After the submission of the application, the borrowers are required to submit all the documents mandated by the banks.
• Loan approval– If the bank finds all the document valid and find the borrower to be capable of paying the loan EMIs on time, they will approve the loan amount within a short duration of 2 days.
• Loan disbursal– The loan amount is disbursed to the applicant after a certain time. That’s all!

Factors of Car Loan Approval in India

CIBIL score- The CIBIL score plays a crucial role when it comes to car loan approval in India. CIBIL score is the rating given to an individual customer by the Bureau of CIBIL based on his/her past loan repayment record. If the borrower is found to be consistent in paying the loan EMIs on time, the person is given a high rating. On the contrary, borrowers who were not regular with their EMI payments are offered a low credit score.

Car loan repayment period– Usually in India the car loan repayment period ranges between 1-7 years. It is up to the comfort of the borrower what repayment tenure he/she wants to pick. The repayment tenure has a significant role to play in deciding the monthly EMIs. If the tenure is higher, the EMIs are low and if the tenure is shorter, the EMIs are naturally more.

Interest Rates- The interest rate offered by the banks is negotiable in certain cases. Borrowers can bring down the rate based on their eligibility factors. Hence, a buyer should shop around and discuss with at least 3-4 banks to get the best loan rate. This is where Ruloans comes to serve you. Our finance experts with astronomical experience let you compare your loan and choose the best lender as per your needs.