Some of the most significant events in a person’s life include buying your own car. The freedom to travel and explore on your own terms is unmatched. Added to this comes the functionality a car brings to the table. But, owning a car can be costly at times. And that’s where the Car Loans enter to help. These are a boon for the aspiring car owners and are of tremendous help. There is a catch in this. The car loan interest rates vary from bank to bank. These can significantly increase your total cost of ownership. Hence it is important to consider various banks and get the best possible interest rates.
This blog discusses the various factors affecting your car loan interest rates. Let us explore which bank has the lowest interest rate for car loan?
Factors Affecting Car Loan Interest Rates
Several factors influence the interest rate you'll be offered on a car loan in India. Here's a breakdown of the most important ones:
Credit Score: A simple rule- the higher your credit score is, the lesser your interest rate will be. This also increases the smoothness of you getting a loan. Credit scores are usually a reflection of your past borrowing and repayment behavior. .
Loan Tenure: The duration for which you take the loan also matters. This causes longer loan tenures, and which can
Down Payment: Down payments are the lump sum amount paid upfront. A higher amount in this case reduces the loan you need to pay. Hence you are less risky as a borrower to the bank. This can lead to low interest rates.
Car Model: The car model you choose can also affect your interest rate. Some lenders offer special rates on specific car models, particularly those with a good track record of resale value.
Income Source: Whether it is a salary or your business income determines your loan amount.
Bank/Lender: Different banks and lenders have varying interest rate policies. It's essential to compare rates from multiple lenders to get the best deal.
Fixed vs. Floating Interest Rates
A car loan in India can be of two types. One is fixed interest rate and the other is floating interest rate. Here is a small gist of the same to explain to you further.
Fixed Interest Rate: The perks of this system is that there is a stability in terms of your monthly payments. In fixed interest rates, you pay the remaining amount at constant monthly sums.
Floating Interest Rate: With a floating interest rate, the interest rate you pay can fluctuate over the loan tenure. External offsets such as RBI Repo rates can influence the overall interest rates. Initially this can look lucrative as it can be lower than the fixed interest rates. But this may increase drastically due to policy changes.
Tips for Getting a Lower Car Loan Interest Rate
If there is a problem, there is a solution as well. Here are a few tips to help you get the best interest rate for your car loan.
Improve Your Credit Score: Maintain a good credit score. This not only helps in car loans but other loans as well. To do so, ensure timely payments of your existing debts, if any. Brownie points are sure if you keep your credit utilization ratio low and avoid hard inquiries on your credit report.
Shop Around and Compare Rates: Compare and make the wise decision. Since the loan will stick around for long times, your wisdom matters. You can check various websites giving financial information about the same as well.
Negotiate the Rate: A lot of time the process isn’t automated and for good reasons. You can visit the bank branch and negotiate a lower interest rate. Cases considered are usually good credit scores or a larger down payment.
Consider a Shorter Loan Tenure: A short loan tenure surely has higher monthly payments. But the win is that your interest rate might be lower.
Make a Larger Down Payment: Larger down payments reduce the burden on banks and you as well. Lower amount to borrow can lead to attractive interest rates. This is beneficial both for you and the lender.
Choose a Fuel-Efficient Car: Some lenders offer lower interest rates on fuel-efficient cars to promote environmental sustainability.
Car Loan Interest Rates Offered by Different Banks in India (Indicative)
Here's a table showing indicative car loan interest rates offered by some of the leading banks for car loan in India in 2023 (Please note that rates can vary depending on your credit score, loan amount, and other factors):
| Bank | Minimum Interest Rate (%, p.a.) |
|---|---|
| State Bank of India (SBI) | 8.50% |
| HDFC Bank | 8.75% |
| ICICI Bank | 8.95% |
| Kotak Mahindra Bank | 9.10% |
| Axis Bank | 9.25% |
| Bank of Baroda | 7.35% |
| Bank of India | 7.35% |
| Union Bank of India | 7.40% |
| Central Bank of India | 7.25% |
It is difficult to vouch for which bank has the lowest interest rates as there is a high weightage of your credit score. But the above listed banks surely imply low interest rates so that you can get your dream car. Park+ has a range of blogs on various car loans offered by different banks and entities. Make sure to check out our website for the same.