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Auto Loan- Select The Bank

About Auto Loan

Auto Loan:

As per the various Auto Loan reviews, there is a general format observed in the way automobile finance products are designed. This is a loan scheme that is designed specifically to enable borrowers to acquire their own vehicles.

  • Auto Loan is usually secured, with either a charge on the valuation of the vehicle to be acquired or collateral, in the form of securities owned.
  • It is usually in the form of a term loan.
  • According to many Auto Loan reviews, since the easy availability of loans, there has been 60% increase in the sale of automobiles, through Auto Loan options.
  • The term, ‘auto loan’ is different from the term car loan and encompasses all kinds of vehicles, such as two-wheelers, used and new cars etc.
  • The two-wheeler segment has a smaller part in the market share of auto loans, as the cost of acquisition of vehicles is less.
  • All FIs offering loans have a screening procedure or auto loan eligibility norms that varies with each bank.

Auto Loan Interest Rates:

  • Many banks offer you automobile loans at auto loan rates that vary between 9% per annum to about 15% per annum. This bunch includes all popular banks, namely:

a)            HDFC Bank: 12.75% p.a.

b)            ICICI Bank: 14.25% p.a.

c)            Dena Bank: 11% p.a.

d)            Punjab and Sind Bank: 12.75% p.a.

e)            Dhanalakshmi Bank: 13.5% p.a.

  • The auto loan rates are determined as per the base rate that is set according to the benchmark rate by the Reserve Bank of India.

Auto Loan Eligibility Norms:

Both Auto Loan reviews and official websites of the banks state that following are persons and institutions eligible for loan at the auto loan interest rates, as per auto loan eligibility norms:

  • Salaried employees of PSUs, government bodies (state/central), reputed companies, firms, educational institutions, reputed private sector companies
  • Above should be permanent employees
  • Non-salaried class:

a)    Self-employed, such as businessmen and entrepreneurs.

b)    Professionals, like doctors, MBAs, engineers etc

c)    Agriculturists

  • Retired persons: who should preferably have their pension account with the concerned bank.
  • Many banks even have differential auto loan rates of interest as per the professional profile of the prospective borrower.

Quantum Of Auto Loan:

  • Permissible quantum of loan to purchase automobiles is determined by the earning and the repayment capacity of the borrower, in case of individuals.
  • In case of institutional borrowers, the determinant is the amount of revenue earned in the past couple of financial years.
  • Thus permissible quantum of loan is generally equal to 2 or 3 times of the net annual income of borrower.
  • Above amount is in the range of Rs.5lacs to over Rs.25 lacs.
  • Above amount is subject to a margin that falls in the range of 5% to 25% on loan amount.
  • According to many Auto Loan reviews, some banks, such as HDFC Bank do not consider any margin before disbursement of loan.

Procedure To Be Followed While Applying For Auto Loan And Documents:

  • According to Auto Loan reviews, if one fulfills the individual auto loan eligibility norms as determined by bank, then generally following documents have to be submitted to avail of loan at auto loan interest rates:

a)            Photo ID proof

b)            Address proof

c)            Income/salary proof

d)            PDCs of equated monthly installments, if no standing instructions are provided for direct deduction.

e)            LIC policy papers/ KVP/ NSC papers, with value equal to that of the loan amount

  • Almost all major banks charge an upfront fee, that is comprised of the:

a)    processing fee

b)    documentation charges

c)    service charges etc

  • The range of the processing fee is around 1% to 2% of loan amount.
  • Above is a one-time charge that is over and above auto loan rates of interest.

Tenure:

  • Banks usually offer loans to purchase your own vehicles at auto loan interest rates, which are usually fixed.
  • Repayment tenure generally is of a minimum period of 3 years, for automobile loans by many banks, such as:

a)            Vijaya Bank

b)            UCO Bank

c)            State Bank of Patiala

d)            Punjab national bank

e)            HDFC Bank

Repayment Of Auto Loan:

The modus operandi to repay loans is either through:

  • PDCs, in case there is no salary account of the borrower that is maintained with the bank
  • By direct monthly deduction from salary account of borrower who has satisfied auto loan eligibility norms, maintained with bank.

Pre-Closure Of Auto Loan:

Most banking institutions charge a fee, which is over and above the auto loan rates of interest, if borrower wishes to pre-close loan amount:

  • This is usually only applicable, when the pre-closure is through take-over by any other financial institution, NBFCs or other banks.
  • Almost all banks charge a preclosure charge that is equal to 2% to 3% per annum, that is independent of auto loan interest rates levied.

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