As the name suggests, this is a loan to buy a used or a new automobile for personal or business use. This loan is also called as vehicle loan, car loan etc. This is a type of secured loan where the vehicle purchased with the loan amount acts as collateral and is “hypothecated” to the financial institution, be it bank or other non-banking financial company (NBFC). If the borrower fails to pay the loan amount, the vehicle may be impounded and sold-off to pay the loan debt.
The total ownership cost of the vehicle is to be understood in two ways, one is the ex-showroom price and other is the on-road price. Ex-showroom price is the cost of the vehicle in the showroom which does not include other charges such as insurance, road tax, registration etc. The cost which includes all these cost plus the cost of the vehicle is the on-road price of the vehicle.
Usually the loan amount given is 80-90% of the total cost of the vehicle (either ex-showroom price or on-road price). The borrower needs to pay for the margin money (down payment). These days many banks are providing upto 100% of the on-road price of the vehicle.
The amount of auto loan which you can get depends upon your income, payment capacity and the vehicle being bought. The interest rate on the auto-loan varies between 10-15% and is fixed for the duration of the loan. The duration of the loan may vary between 3-7 years.
To be eligible for auto loan, you need to have a regular income, either in the form of a monthly salary or income in the case of self-employed. The maximum loan amount which can be approved is of the order of 2.5-3 times the annual salary of an employed person or upto 6 times the annual income of self-employed person. However, these may vary with the bank and NBFC.
Since these are secure loans, the processing is fast and approval is obtained within days. Documents which are required for applying for a auto loan are ID proof (Aadhar card, Passport, Driving license etc.), Income proof (salary slip, ITR form, Form 16, bank statement and balance sheet, profit-loss statement in case of self-employed) and residence proof (voter’s ID card, PAN card, electricity bill, post-pain/ land-line telephone bill etc.). Apart from all these the cost of the vehicle from the dealer alongwith other car papers are also needed for the auto loan.