Best Car Loan in India 2024

Purchasing a car in India is often considered to be one of the most important life decisions, second only to purchasing a home. With the explosion of new-age technologies, prospective car buyers are looking to buy the fanciest, most advanced car at the most competitive prices.
 
Of course, in this journey, choosing the right car loan is critical. Small variations in the interest rate can tally up to a big amount in the long run. Naturally, car buyers are always on the lookout for the best loan product while simultaneously balancing their monthly expenses. 

The task of getting a car loan has become exponentially easier as several banks, both public and private, are keen on lending to borrowers, provided they have a good credit history. With patience, borrowers can find the cheapest car loan in India by furnished by the best banks for car loans in India.

As banks compete with each other to provide loans at the most competitive interest rates, borrowers must also exercise due diligence and ensure that they read the fine print of the loan deed. Singing on the dotted line without combing through the clauses of the loan deed can elevate risks, and impose additional payment burden.

List of 10 best banks offering affordable car loans in India 2024

Eligibility criteria and documents required for availing a car loan

Private-sector banks often have more stringent documentation norms and CIBIL score requirements compared to public-sector banks. However, this is not a thumb rule. Private and public sector banks can both forego one or the other documents, provided your income profile and credit history align with their lending parameters.

Some of the common criteria across all banks are:  

• The age of the borrower should be between 18 to 75 years
• A minimum net monthly income of Rs 20,000 
• Minimum of one year of experience working with the current employer
• Borrowers could be salaried or self-employed. In case, the borrower is salaried, he must be employed with a government organisation or a private company.

Further, the documents required for getting a car loan are divided into three main sections:

• Identity proof: This can include Aadhar, driver's license, voter ID or PAN card
• Address proof: This can include Aadhar, driver's license, ration cards, light, water or telephone bills
• Proof of income: This includes salary slips, Form 16, bank statements of the last 6 months and the latest ITR or Income Tax Return

Checklist to follow while applying for car loans

Taking a car loan mandates that the borrower adequately researches the existing car loans available in the market. This research can help them find the cheapest car loan at the most affordable interest rates.

However, that is not where the list ends. In case, the borrower is buying a used car, he must also check that the car is free of any countervailing title, that is, it has free and clear ownership.. Apart from this, there are other legal requirements that banks are required to check. The new car buyer will also have to foot the bill for insurance and registration expenses.

Here is a comprehensive checklist:

How to calculate car loan EMI?

There are a number of calculators that you can use to calculate your car EMIs. However, for those, who are interested in learning how the EMIs are calculated, there is a formula as well.

The formula is: [P x R x (1+R)^N]/[(1+R)^N-1]

Where P, R and N are variables. The total EMI amount will change the moment one enters a new value for the any of the variables.

The P stands for the principal. It indicates the original loan amount that has been disbursed to the borrower by the bank.

The R stands for the rate of interest at which the car loan is being given.

And the N stands for the number of years or tenure for which the loan is to be repaid. As the EMI is to paid monthly, the duration is calculated in months.

Benefits of taking a car loan

Income tax benefits on car loans: 

• Businessmen can use car loans to claim tax exemption 
However, they are required to show that the car is being utilised for authentic business needs, and not for personal enjoyment.    

• Car loan interest can be treated as an expense
Car loan borrowers can show the interest paid on the car loan as an expense to claim a tax exemption. However, any amount utilised towards paying the principal cannot be used for exemption.   

• The car can be shown as a depreciating asset
The car that has been purchased can also be shown as a depreciating asset. The value of the car can be depreciated at the rate of 15% per year, which helps the borrower reduce his taxable profits by the said amount every year.    

• Tax benefits on the car can be availed for both business as well as personal needs
There are situations when a car is being deployed for business as well as personal purposes. In such situations, the buyer of the car can treat a part of the interest incurred and depreciation on the car as an expense. This way, a car loan can serve to reduce one’s tax liability while simultaneously serving as an asset.

Income tax benefits taken on car loans to purchase electric vehicles

In order to promote the usage of electric vehicles and reduce vehicular pollution, the government has incentivised buyers by introducing Section 80 EEB in the Income Tax Act. The Act permits EV buyers to claim tax savings of Rs 1.5 lakh on the interest burden incurred while paying for an electric car.

For one to claim a deduction like this, the loan must be taken from a bank or an NBFC.

Factors to consider while availing best car loan

Ensure that you are taking the loan for the right car
One must have clarity about the car he or she wishes to buy. First-time car purchasers sometimes opt for used cars after accounting for the lack of driving experience and the cheap selling price of used cars. However, used cars often cost more to the purchasers in the form of servicing and maintenance charges.

Additionally, buying an expensive new car for the first time, which one might not use fully also ends up hurting the buyer from two fronts. On the one end, he has an asset that is not being used fully, and on the other, he is forced to pay interest on the car. Buying a car is an important decision, and the prospective purchaser must research thoroughly before committing to a vehicle.

Interest rates and other charges on car loan

Purchasing a car is a significant investment that dents one’s monthly income inflows to a certain extent. Choosing the right bank can help one lessen the impact of the EMIs, and effectively contribute towards higher savings as well. Arbitrarily choosing any car loan without examining the rates offered by other banks can deprive the borrower of a massive amount of disposable income in the bigger picture. 

Most importantly, the EMI on a car loan is not solely determined by the interest rate. Other contributing factors include the loan tenure, insurance plan, car model, payment plan as well as the price and the resale value of the car.

Terms and conditions

Taking on a car loan can have a negative effect on your credit score if you fail to pay back the loan. Therefore, it is important that one goes through the fine print of the loan agreement very carefully. Without perusing the terms and conditions, it is not advisable to commit to undertaking the bank loan.

Credit score

Failure to pay a car loan can disfigure your credit history, and make it increasingly difficult for you to raise loans either for personal or business purposes in your life.

Also read about: Best Personal Loan to Buy in 2024

Conclusion

For a responsible and conscientious borrower, a car loan bridges the gap between the manufacturer and the customer. The car loan and its competitive interest rate ecosystem is a key driver of auto industry sales in India. 

No wonder, then, that the Indian government has drawn up conducive tax policies that incentivise individuals to buy cars and subsequently claim exemptions on the interest payments. This effectively serves the buyer by curtailing elevated tax liability, and simultaneously boosts business activity and consumption in the economy.

However, before taking a car loan, borrowers must have a crystal-clear idea of the car they want to drive, and be mentally prepared to service the loan for the same car. Refusing to pay your car loan interest mid-way leads to a bad impact on one’s credit history. A bad credit record prods other lenders to either deny bank loans to the borrower or do so at a high-interest rate.