Car loans: Here are the best September rates and factors to help you decide

With the festive season approaching, many are planning to buy a new car. However, with the rising cost of vehicles, it can get tough to afford an outright purchase. A car loan can be a helpful way to finance your purchase, but it is imperative to compare the interest rates of different banks before you apply.

Here is an overview of the interest rates and processing fees charged by various banks for their car loans, spanning both public and private sectors, as compiled by Paisabazaar.

*Concession of up to 50% on processing fee for SBI GREEN CAR (Electric Vehicle).

**0.25% interest rate concession for existing housing loan borrowers and corporate salary account holders.
 

***0.50% interest rate concession to borrowers with credit scores of 750 and above. Interest rate concession of 0.20% to borrowers for financing Electric 4 Wheelers. 0.20% concession to existing Housing Loan Borrowers.
 

****Concession of up to 50% on processing fee for PSB Apna Vahan Sugam.
 

Rates and charges as of 6th September 2023

Here are important factors to consider before opting for a car loan, according to Bankbazaar

Credit score:
It is vital that you maintain a good credit score when you apply for a car loan. Apart from the loan getting approved quicker, lenders will offer low-interest rates if your credit score is good.

No security or collateral is required when availing of a car loan. The car acts as the security.

Pre-closure/Foreclosure Penalty

While opting for a car loan from any particular bank, you must check if it charges a pre-closure penalty. Pre-closing your loan means you have cleared your loan amount before the specified tenure and thus has saved a good amount of money that you would otherwise have to pay as interest. But when you pay a lump sum of money to the bank against the car loan before the actual repayment period, banks levy a pre-closure penalty on the remaining loan amount. Since the penalty rate is not the same for every bank, make sure to select the bank wisely. Consider banks which either don't ask for any penalty or charge a very minimal amount.

Loan Repayment Tenure

Another major aspect of a car loan is the loan repayment period and this is why it is pivotal to consider the repayment period carefully while borrowing a loan, The bank officials might offer you long repayment periods with lower interest rates, but understand that this way you will not be paying less, rather you will end up paying much more as interest. Initially, you might feel 7 years is a good amount of time to repay your loan comfortably, but the total amount that you have to pay as interest during this entire period will be extremely high. Remember, the longer loan tenure you choose, the more you will have to pay as interest outgo. 

Interest rate: Also, look for a low-interest rate loan as it decides the EMIs that a borrower has to repay across the loan tenure. Hence, before reaching any decision, first check and compare the rates offered by various banks to find the most affordable option. Though the process might feel tedious at times, this is necessary to do as there is no standard for car loan interest rates. Different banks offer different interest rate to the customers after evaluating their profile and repayment ability. Moreover, since there are two types of interest rates, floating and flat, the rates differ from bank to bank.

" Remember a few points of difference in the interest rate can make a huge difference in the EMIs that you have to pay for your loan, so consider even the minute differences to find out the lowest one," said Adhil Shetty, CEO of Bankbazaar.

Processing fees: Almost every bank charges a fixed amount to process the car loan application of a borrower. While some banks and agencies offer car loans at low-interest rates, they charge a high amount of processing while offering the loan. The processing fee varies from one bank to another and the borrower should ask if the bank is charging a processing fee or not. Generally, banks charge a fee on the loan amount and it ranges between Rs 2, 000 to Rs 5, 000. However, since banks charge 0.5% to 1% of the loan amount, if you take Rs.5 lakh to purchase a car you might end up paying a huge amount of amount as processing fee. So, try to negotiate with the lender to save some amount on the fee. Sometimes during festival seasons and special offers, some banks waive off up to 100% of the processing charges. 

EMI repayment: When opting for a car loan, it is important to assess your capability of paying the EMIs on time before taking the plunge. Calculate all other ongoing EMIs for education, personal or home loans (if there is any) and then decide whether you can afford to pay the EMIs or not. If the affordability of the EMIs is not checked on time, it might result in default, debts, and finally repossession of the car. An affordable EMI amount will be one that will fit your monthly budget without overshooting it.

Acceleration Clause

An acceleration clause implies that the borrower must pay off the entire loan immediately in circumstances when he/she faults on the EMIs or the full payment. This clause can also be activated if the borrower commits any intentional breaches or moves/sells the car without the lender's knowledge. Once the lender sends a notice to accelerate your car loan you have to pay the entire loan amount, failure to do so will lead to repossession of your car.

Bankbazaar has compiled some of the best car loan products for September 2023

HDFC Bank for luxury cars 

The effective interest rate is 8.95% p.a.

Tenure is up to 84 months

The maximum loan amount is up to Rs 10 crore

100% financing of on-road price for select models

State Bank of India: Designed for professionals and agriculturalists with no Income Proof

The effective interest rate is 8.65% p.a. onwards

Tenure is up to 84 months

Up to 90% of the on-road price may be financed

Loan is provided for professionals and agriculturists

Axis Bank for Small Loans

Effective interest rate starts from 9.10% p.a.

Tenure is up to 96 months

Up to 100% of the on-road price may be provided as a loan

You can avail a loan of Rs.1 lakh

Free Personal Accident Insurance Federal Bank

Effective interest rates start from 11.00% p.a.

Tenure is up to 84 months

No income documents need to be provided

Up to 100% of the ex-showroom price can be availed

Canara Bank for Low-Interest Rates for Used Cards and New Cars

Effective interest rate starts from 8.80% p.a.

Tenure is up to 84 months

Up to 90% of the on-road price may be provided

Lower interest rates are provided for women