For most middle-class families in India, buying a car is usually a big financial decision. If you are in the market to purchase a car, then you are in luck. This is because recently the Reserve Bank of India (RBI) has slashed their repo rate to 6%. The repo rate is the rate at which the RBI lends money to other banks. Most banks have carried over the benefits of this reduced interest rate to their customers. As a result, car loan interest rates are now lower. However, before you apply for a car loan, you should understand how this interest rate works and ways in which you can secure the best deal.
What Is a Car Loan Interest Rate?
It is essentially the interest charged by the lending institution on the loan you take to purchase a car. This interest rate translates to an additional amount you have to pay the lender on top of the actual loan amount (known as the principal). This interest is deducted each month alongside the Equated Monthly Instalments (EMIs) for your four-wheeler loan.
Most banks and non-banking financial companies (NBFCs) in India charge around a 9% interest rate for car loans. Since these loans are meant to finance the purchase of a car (high-value purchases), this 9% usually turns out to be a big figure. Hence, you are better off trying to reduce the amount of interest paid so that your final repayment amount is closer to the actual loan amount.
Types of Car Loan Interest Rates
To get the best deal, you first need to understand the two main types of car loans available in India.
Fixed Interest Rate
In this case, the car loan interest rate stays the same throughout the loan period. This means that even your EMI remains constant every month. This is good if you want to plan your budget in advance.
Floating Interest Rate
This rate changes based on the market. If rates go down, your EMI can be reduced and vice versa. So effectively, this option carries some risk. Nevertheless, it can be quite helpful when interest rates are expected to fall.
How to Get the Best Car Loan Interest Rate
Whether you opt for a fixed or floating interest rate, getting the lowest car loan interest rate depends on several factors. Here are 5 steps with which you can increase your chances.
Check Your Credit Score
Lenders check your credit score before offering you a car loan. A higher score means you are financially reliable, which can get you a lower interest rate. Always check your score before applying and try to improve it if needed.
Compare Lenders
Don’t just go with the first bank or finance company you come across. Compare interest rates from different lenders. Even a difference of 0.5% in the car loan interest rate can save you thousands of rupees over time.
Choose a Shorter Tenure
The longer the loan period, the more interest you pay. A shorter tenure may increase your EMI, but it reduces the total amount you pay back. Try to choose a loan term that fits your income and doesn’t stretch for too long.
Make a Bigger Down Payment
If you pay more money upfront while buying the car, the loan amount becomes smaller. This reduces the total interest you pay. Some lenders may even offer you a better car loan interest rate if you make a larger down payment.
Negotiate with the Lender
Sometimes, lenders are open to negotiation, especially if you have a good credit history or a salary account with them. Don’t hesitate to ask for a better deal or reduced fees.
Use Online Loan Calculators
Most banks and financial websites offer online EMI calculators. Use these tools to check how different car loan interest rates affect your monthly payments. This helps you plan better and avoid surprises later.
Key Takeaway
Getting a car loan can make your dream of owning a car come true. But choosing the right car loan interest rate is just as important as picking the right vehicle. By checking your credit score, comparing lenders, and understanding all the terms, you can get the best deal and avoid paying more than you need to. Take your time, do your research, and drive home knowing you’ve made a smart choice.