Purchasing a car is a significant milestone, and securing the right Car Loan is crucial for a seamless ownership experience. However, it's essential to know what a Car Loan costs to avoid any financial surprises down the road.
Components of a Car Loan
When evaluating what a Car Loan costs you, several factors come into play -
| Components |
Description |
| Principal amount |
The total amount borrowed to purchase the car.
|
| Car Loan interest rate |
The percentage charged on the principal amount (9-14%), depending on your credit score. |
| Processing fee |
Charged by the bank for processing the loan application, typically 1-2%. |
| Down payment |
Upfront payment made by borrowers, usually 10-20% of the car's price. |
| EMI (Equated Monthly Instalment) |
Monthly payment made towards the loan, including both principal and interest. |
| Insurance premium |
The cost of insuring the car, which can be included in the loan amount. |
| Late payment penalties |
Charges incurred for delayed EMI payments. |
| Prepayment penalties |
Fees for repaying the loan before the agreed term. |
| Documentation charges |
Cost for paperwork and administrative procedures, typically ₹500-₹700. |
| GST on loan services |
Goods and Services Tax applied to various loan services, typically 18%. |
| Cheque / ECS / NACH bounce / instrument return charges |
₹300-₹350 per instance |
| Cheque / instrument swap charges |
₹450-₹500 per instance |
| Duplicate statement issuance charges |
₹200-₹250 per instance |
| Duplicate repayment schedule issuance charges |
₹200-₹250 per instance |
| Penal charges |
Financial default: 8% p.a. above applicable interest rate on the overdue amount (subject to the aggregate not exceeding 24% per instance). |
| Loan cancellation / re-booking |
₹500-₹550 per case |
| Foreclosure / part payment closure |
5% of the outstanding principal |
| Stamp duty |
At actuals |
| Issuance of credit report |
₹50-₹100 per instance |
| Registration Certification collection charge |
₹200-₹250 per instance |
Tips to minimise your Car Loan costs
Securing a Car Loan can be a significant financial commitment, but there are several strategies you can employ to minimise the associated costs. Understanding what a Car Loan costs and being proactive can save you a substantial amount of money.
1. Improve your credit score
A higher credit score can help you secure a lower new Car Loan interest rate. Pay bills on time, reduce debt and regularly check your credit report for errors.
2. Make a larger down payment
A larger down payment reduces the principal amount, lowering monthly payments and total interest. Aim for at least 20% of the car's purchase price as down payment.
3. Choose a shorter loan term
Opt for a shorter loan term to save on interest over time. Consider a term of 3-5 years instead of 6-7 years.
4. Consider prepayment options
Choose a loan that allows prepayments without penalties to pay off your loan faster and save on interest.
5. Avoid unnecessary add-ons
Carefully assess add-ons like extended warranties and insurance products to avoid unnecessary costs.
6. Maintain a stable financial profile
Stable employment and consistent income can help you qualify for better loan terms. Avoid large purchases or additional debt before applying.
Also Read: How to get a Car Loan to buy your dream car?
Conclusion
Car Loan costs includes more than just the monthly EMI. Considering factors like interest rates, loan tenure, processing fees and hidden costs is essential. By doing so, you can make a well-informed decision and manage your finances effectively.
Know what a Car Loan costs you by examining all aspects of the loan. For instance, Axis Bank's New Car Loan offers competitive interest rates starting from 7.99% p.a., flexible tenures up to 7 years, and up to 100% on-road funding. Special benefits for priority banking customers and an attractive scheme for electric vehicle funding make it an excellent choice.
By taking the time to understand these costs and leveraging the right tools, you can drive your dream car without any financial stress.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
