The Different Types of Car Loans: How to Choose the Right One for You

If you want to buy a car but don’t have enough money, banks and financial institutions will lend you money at a high-interest rate. You can get the car of your dreams, whether it’s a brand new hatchback or a used sedan, with the right car loan.

On the market, there are three types of car loans: new car loans, used car loans, and loans against car loans. As the name implies, a New Car Loan is given to someone who buys a brand new car right out of the showroom. There are new car loans available with annual interest rates ranging from 8% to 15%.

Banks and lenders also provide Used Car Loans to people looking to purchase a second-hand or used car at a slightly higher interest rate. Loans against used cars are available for vehicles that are less than five years old.

In an emergency, you can use your old car as collateral for a bank loan to purchase a new one. This is referred to as a Loan Against Car.

New Car Loan

As previously stated, you are eligible for a new car loan from a bank or lender if you intend to purchase a brand new car from a dealership. If you want to buy a new car but don’t have the funds, banks or lenders may be able to assist you.

Banks or lenders will help you bridge the funding gap for your purchase. In exchange, you must repay the borrowed amount plus interest to the bank or lender over a set period of time. There are numerous types of car loans available on the market from which to choose.

Each bank and lender will set its own interest rates. The interest rate will also differ depending on how long you intend to repay the loan. Interest rates typically range from 8% to 15% and are payable over a period of up to eight years.

Used Car Loan

If you have your heart set on buying a used car, banks and financial institutions will help you. With a Used Car Loan, you could borrow up to 90% of the car’s value. Vehicles that are less than five years old can be purchased with funding.

The interest rate on a used car loan is slightly higher than the interest rate on a new car loan. On used car loans, banks and lenders charge annual interest rates ranging from 8% to 16%. The loan can be repaid over an eight-year period. When the loan matures, the vehicle must be less than ten years old.

Loan Against Car

In times of need, a loan against your car can provide you with quick cash. If you are eligible for such a loan, the loan amount will be transferred to your account almost immediately. You are repurposing your existing vehicle collateral to raise funds for a new vehicle or an emergency.

These auto loans are available at banks and financial institutions across the country. Loans of up to Rs10 lakh, or 100 percent of the car’s value, are available. The interest rate on these loans is much higher than the interest rate on other types of car loans. Banks charge annual interest rates ranging from 14 to 15%.

How to Choose the Right One for You?

Each bank and financial institution that offers car loans has its own set of eligibility requirements. However, there are a few ground rules that apply to all situations. A car loan application is only available to people who are at least 18 years of age.

Banks also have an upper age limit criterion. You can apply for a car loan if you are a salaried employee until you are 60 years old. You can apply for a car loan for up to 65 years if you are self-employed or own a business. You must earn at least Rs10,000 per month to be eligible to apply for a car loan.

Financiers and banks want applicants to be stable, so they ask for a current address where you have lived for at least a year. You should also have a designated parking space at home for your car. You can apply for a loan for a specific make and model of car from a specific manufacturer.

You must also have a good credit score to be eligible for a car loan. If your credit score is above 750, banks and financiers will consider you for a car loan.

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