Car loans (car finance in India) are available at attractive interest rates starting from 8.70% per annum. Depending on the lender, you can loan up to 100% of the car’s on-road value. Some lenders offer car loans with repayment terms of up to 8 years. The application process for a car loan is simple and can be completed either online or offline.
Types of Car Loan Interest Rates – Fixed and Variable Rates
Car finance in India can be either fixed or variable. A fixed interest rate is an interest rate that remains constant throughout the life of the loan. Factors such as market fluctuations do not affect fixed interest rates. On the other hand, a floating interest rate is one where the interest rate is constantly fluctuating according to the changing trends in the financial markets.
Fixed Interest Rate:
When the financial markets are not doing well, borrowers usually go for a fixed interest rate. Ideally, you can set the interest rate on your car loan according to your preferences. If you feel that interest rates may rise shortly or if you think that the financial markets will not fall below a certain level, it is a good idea to opt for a fixed interest rate.
Floating Interest Rate:
It is a cheaper interest rate than the fixed interest rate. Floating interest rates fluctuate with market trends. Any changes in the base rate or MCLR will affect the floating interest rate as well. So, if interest rates rise, your car loan payments will increase which can be a hassle. But if interest rates fall, it can help you save in the long run.
The main drawback of variable interest rates is that you cannot effectively stick to your financial plan as interest rates can change from time to time. Used Car Loans Lenders set the interest rates for used car loans depending on various factors such as the age of the car, the loan term, etc.
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Credit Score
If you have a credit score above 750, lenders are likely to offer you a car loan at a lower interest rate. This is because a credit score shows that you have been honest about your past repayments, and a high credit score indicates to lenders that
you are at a lower risk for lending. So, if you want to get a lower interest rate on your car loan, it is a good idea to keep your credit score at a healthy level.
A good credit score can also get you additional benefits like faster approvals, pre-approved offers, etc.
Repayment tenure
If you choose a longer tenure, your EMIs will be lower but you will pay higher interest throughout the loan tenure. On the other hand, if you choose a shorter tenure, your EMIs will be higher but you will be able to repay the loan faster.
If you choose a shorter term, lenders will usually offer you a lower interest rate on your car loan simply because the loan will be paid off faster.
Loan amount
The amount of the car loan you avail will affect the interest rate charged on your car loan. If you choose to borrow a higher amount, you may get a lower interest rate and vice versa.
Lender relationship
A lender with whom you have a good relationship regarding payments and other transactions may offer you a car loan at a lower interest rate. Therefore, you should check the interest rates offered by your existing lender before consulting with other car loan lenders.
Income
If you have a higher income, you may benefit from a lower interest rate as a higher income indicates a higher repayment capacity. If you choose a longer tenure, your EMI will be lower but you will pay higher interest throughout the loan tenure.
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