A car can also help in meeting financial needs. Know how

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We all know we can buy a car on loan. But did you know that in cases of requirement, you can also get a loan against your car. The answer is yes. Just like a property is mortgaged for a home loan, the same way, a loan can be taken against a car. This is called a ‘loan against car’. When and how can you get a loan against your car? Is this a good option? When can you take such a loan? How much money can you get as a loan? let’s find out.

A loan against a car is a secured loan. You can seek a loan by keeping your car as collateral. The car will act as a guarantee. The loan process is fast and hassle-free. It is a beneficial option for raising funds in an emergency. People above 21 years and below 70 years of age can apply for such a loan. For salaried individuals, the age limit is 60 years.

Who gives the loan?

Most banks and NBFCs offer loans against a car. You can apply on the bank’s website or directly at any bank branch. After applying for the loan, the financial institution evaluates the car’s value. Usually, 50% to 150% of the insured declared value (IDV) can be sanctioned as a loan. Now let’s understand this with an example. Suppose, the bank values a loan spplicant’s car at Rs 5 lakh. Then, he can get a loan in the range of Rs 2.5 lakh to Rs 7.50 lakh.

While deciding on the loan amount, the bank or NBFC takes into consideration your income, repayment capacity, credit history, etc. The repayment period  ranges from 12  to 84 months. in some cases, it could even be longer. Besides, financial institutions charge processing fees in the range of 1% to 3%. Moreover, foreclosure charges may also be levied if you repay the loan before the tenure ends.

Rate of Interest

In case of car loans, interest rates generally range from around 14% to 18%. IDFC First Bank’s interest rates start from 14.49%, while, in case of HDFC Bank,  rates start from 13.75%. HDFC Bank claims that it offers this loan at 2% lower than personal loans. The interest rates of different financial institutions are different. Taking a loan against an asset in emergency is considered a better option than liquidating any of your long-term investments.

Which cars are ineligible

Usually, loans are granted against less than 10-year-old cars. Banks can decline to grant loans against more than 10 year older cars. If you don’t have all the necessary government approvals, you won’t get this loan… Banks may also refuse to give loans for cars whose models are no longer in production… In addition, there may be difficulty in getting such types of loans against commercial vehicles, i.e. those with yellow number plates…

The bank has the legal right to seize your car if you don’t pay the installments. Before applying for a car loan, compare the interest rates and repayment conditions of different financial institutions. Try to negotiate lower interest rates with the bank.