What is the Interest Rate on a Car Loan? 3 Factors That Affect
Who doesn’t think that purchasing your dream car is an exciting endeavour? Nobody, really!
But the road to financing that dream can sometimes be perplexing for many.
One of the key aspects to make this financial journey easy is: to understand car loan interest rates.
So, let’s take a ride through the world of car loans and answer once and for all: what is the interest rate on a car loan?
Car Loans Simplified
Before we understand interest rates, let’s get to the basics.
A car loan, or automobile loan, is a financial arrangement offered by banks or Non-Banking Financial Companies (NBFCs) that enables you to acquire a two-wheeler or four-wheeler vehicle.
In short, it’s your ticket to hitting the road on your own set of wheels.
Types of Car Loan Interest Rates
Car loan interest rates in India come in two types – fixed and variable.
Fixed Interest Rate
This type remains constant throughout the loan’s term, making your monthly payments predictable. It’s unaffected by market fluctuations.
Variable Interest Rate
Unlike the fixed rate, a variable rate can change in response to shifts in financial market trends. This can make your monthly payments fluctuate.
Factors That Affect Car Loan Interest Rates
To truly understand car loan interest rates, you must note that car loan interest rates are not arbitrary numbers; they are influenced by several factors:
1. Loan Amount
The amount you intend to borrow for your vehicle plays a role in determining the interest rate.
Typically, smaller loans may attract slightly higher rates, while larger loans might secure more favourable terms.
2. Loan Tenure
The duration over which you’ll repay the loan also matters. This means that longer loan terms can sometimes lead to higher interest rates as they pose a greater risk to the lender.
3. Credit Score
Your credit score, often regarded as your financial report card, is pivotal. You must note that a higher credit score often translates to a lower interest rate as it signifies lower risk for the lender.
As a smart individual, you must keep these factors in mind while taking a card loan.
Comparing Car Interest Rates
For most banks, the lowest car loan interest rates can begin from around 7.30% per annum. However, these rates can vary based on a range of factors.
To make informed decisions, it’s crucial to compare interest rates offered by different banks or NBFCs. Here’s a snapshot of the best car loan interest rates from some renowned banks in India in 2023:
- Canara Bank: 7.30% – 9.90%
- Bank of India: 7.35% – 7.95%
- ICICI Bank: 8.82% – 12.75%
- Indian Bank: 8.20% – 8.55%
- Union Bank Of India: 7.40% – 7.50%
- Punjab National Bank: 9.40% – 9.90%
- Central Bank of India: 7.25% – 7.50%
- IDBI Bank: 8.40% – 9.00%
- HDFC Bank: 8.80% – 10.00%
- Corporation Bank: 7.40% – 7.50%
- State Bank of India: 7.95% – 8.70%
- UCO Bank: 7.70% – 9.30%
Car Loan Application Process
To fully answer the question of what is the interest on a car loan, you must first know the car loan application process.
Here’s a step-by-step guide that you must bookmark for future reference:
1. Check Your Credit Score:
Start by checking your credit score. A positive CIBIL score, typically above 750, is often required for eligibility.
2. Apply with Lenders:
Research and apply with various lenders, such as
- nationally significant banks
- community banks
- credit unions
- internet lenders
But it is always advised to explore your options before settling.
Once you’ve narrowed your search, obtain interest rate quotes from lenders and compare offers. You can even get pre-qualified or pre-approved for a loan.
4.Determine the Loan Amount:
Your pre-approval offers will specify the maximum amount you can borrow, but this doesn’t necessarily dictate the car’s price you can afford. You must also plan for additional expenses like taxes and fees.
5.Choose the Car:
Armed with financing offers and a budget, start hunting for your dream car.
Finding the Best Interest Rate
You must know that understanding what is the interest rate on car loan has to be complemented by your knowledge on the factors that affect the interest rates. These factors include:
- loan tenure
- your relationship with the bank
- the vehicle’s make and model
- employment type
- down payment
- your existing financial commitments
Understanding these factors can help you secure a lower interest rate on your car loan, making your dream car much more attainable.
So, as you navigate the world of car loans, remember that the road to the best interest rate might take a few twists and turns, but with the right knowledge, you can steer your way to a great deal.
Bookmark this article for all your doubts related to what is the interest rate on a car loan.
Happy driving (in your own brand new car)!