Owing a car is not looked at a piece of luxury anymore rather it is seen as a necessity. The lack of good public transport system has pushed many to own a car. Owning a car indeed makes the commute easy on body and mind.
A car makes traveling from point A to point B possible without depending upon public transport. In the past two decades, India has witnessed rapid motorization due to the boom in the industrial production and rise in the average income of a common man.
In fact, a record 4 million passenger cars and commercial vehicles were sold in the year 2017 and this number is expected to swell even further.
What’s even more surprising is the rise in the sale of the used cars. But not everyone can buy a car by paying the full amount. This gap is bridged by bank and NBFC companies that provide auto loans in return for interest along with the principal amount. The option to finance has made the dream of owning a car possible for an average Indian.
What’s even more exciting is that the loans are now offered on used cars.
However, what concerns the most folk is the rate of interest that will be offered to them. Also, the rate of interest is generally higher for the car than two wheels.
How Credit Score Effects the Rate of Interest on a Car Loan?
The rate of interest offered generally depends on your credit score. The credit score is one of the key factors that determine the rate of interest a lender will charge on a credit. The credit score is usually in the range of 0 to 900. A credit score in the range of 750 to 900 is considered as good score in the eyes of a lender and the individual can negotiate on the rate of interest. On the contrary, the individuals with a poor credit score are considered as risky borrowers and usually a lender charge more rate of interest to the individual whose credit score is less than 600.
For instance, if an individual has a credit score of 750 & above then most likely he will be offered an interest rate of 12% on used car loans. If the credit score is around 700, then a person will attract an interest rate of around 13% on the car loan. And if the credit score is around 650 then the lender is likely to impose an interest rate of around 14%. The interest rate further climbs up to 15% if you have a credit score below 600. If you have a high credit score, then you can easily get a loan with a low rate of interest as peeps with high credit are favorites among lenders. On the other hand, if you have a low credit score then you will have a hard time getting a loan at a low rate of interest.
Before applying for a loan it is essential to check your credit score online, which helps you to determine how much eligible you are to get loan approval.
Average Car Loan Interest Rate by Loan Principal Amount and Tenure
Loan principal and the duration tenure are the two major factors that determine the rate of interest offered on a loan.
The rate of interest and the net loan amount are inversely proportional to each other. The higher the loan amount is the less you the interest rate you will have to pay. On the other hand, if you opt for a short period of time then you will have to face a high rate of interest on your loan. For instance, if you apply for a used car loan less than 3 lacs in the current year (2019) and the tenure is less than the 23 months then you will fetch an interest rate of 15%. Similarly, if the tenure is more than 23 months then the interest rate will be 15.00%.
Similarly, if you apply for 6 to 10 lacs for a new car loan for a period of 3-5 years then you can expect an interest rate of around 9.35%.
On the other hand, if you borrow a loan principal of 6-10lacs for a used car loan for a period of fewer than 23 months then the lender will charge you with an interest rate of 13.50%. If you borrow the same amount for a period more than 23 months then, the lender will levy an interest rate of 14.0 %.
If you require a loan amount of 10 to 20 lacs for a new car for a tenure of 3-5 years, then you can expect an interest rate of 9.10%. For the same loan amount on a used car for a period of fewer than 23 months then the lender will charge an interest rate of 13.00%. But for the loan of the same amount for a tenure of more than 23 months, the lender will charge an interest rate of 13.50%.
If you want to own a premium car, then certainly you would require a significant amount of credit, probably more than 20 lacs. If you are aiming for a credit of more than 20 lacs for a new car loan for a period of 3-5 years, then be prepared to pay an interest rate of 8.85%. However, for the same amount of loan for a used car loan for a period of fewer than 23 months then the lender can charge you with an interest rate of 12.75%.
For the same credit amount, for a period of more than 23 months then you could be charged with an interest rate of 13.25%.
Average Interest Rate by Lenders
Although, there are some rules and regulations levied by the Reserve Bank of India on the maximum rate of interest a lender can charge their customers. But the amount rate of interest the lender can charge is well under the specified limits set by RBI. So, the rate of interest varies with lenders, so it is important to do market research before you apply for a car loan.
However, most of the lenders charge a high rate of interest on used cars as compared to new cars. This is so because lending on a used car is quite risky for lenders as compared to lending on new cars.
Banks and other lenders offer two types of interest rate which are fixed and floating interest rates. The fixed interest rate stays constant throughout the loan tenure irrespective of the changes in the market.
On the other hand, the floating interest rates changes with the fluctuations in the financial market. It is quite common that the floating rate of interest is generally lower than the fixed rate of interest as there is a considerable risk involved. The rate of interest can either decrease or increase in response to the market fluctuations.
The Interest Rate on a Used Car Loan
For instance, in the year 2019, fixed used car loan interest rate for the various banks are – HDFC – 13%, ICICI – 10.5%, Kotak Bank – 17.00%, Andhra Bank – 11.85%.
On the other hand, floating rate of interest for used car loan offered by various banks are – PNB – 11.20%, SBI – 12.6%, Union Bank of India- 11.85%, Central Bank of India- 9.95%.
The lowest car loan interest rate is offered by Bank of Maharashtra which is 9.40%.
The Interest Rate on a New Car Loan
The fixed rate of interest for a new car loan offered by various banks are – HDFC – 9.25%, ICICI – 8.65%, Kotak – 11.50 %, Andhra Bank -9.4%
The floating rate of interest for a new car loan offered by various banks are- SBI -9.3%, PNB – 8.75 %, Union Bank of India – 9.20%, Central Bank of India -9.00%
So, it is important to do a car loan interest rate comparison in order to land a good deal on loan.