New Delhi: Following the reduction in GST rates, car sales across India have risen sharply. Preliminary estimates from the auto industry suggest that around 4.7 lakh cars were sold in October, marking a 17 percent increase compared to October 2024.
If you’re planning to buy a car and intend to finance it through a loan, it’s crucial to know which banks are offering the most competitive interest rates.
Union Bank and SBI Cut Car Loan Interest Rates
The State Bank of India (SBI) has recently reduced its car loan interest rates. It now offers car loans at 8.75 percent per annum, while the Union Bank of India has more attractive rates starting at 7.90 percent per annum.
Here’s a look at what borrowers should keep in mind when choosing a bank for their car loan.
Longer Tenure Means Higher Interest Cost
It’s always advisable to take a car loan for a shorter duration. While most banks allow a maximum tenure of eight years, opting for a seven- or eight-year loan usually results in higher interest rates—often up to 0.50% more than shorter loans of three to four years.
Credit Score Also Affects Loan Rates
The interest rate on your car loan largely depends on your credit score. Borrowers with good credit histories and steady income sources are more likely to get loans at lower rates. Maintaining a high credit score not only improves your loan eligibility but also ensures better terms.
Check These Three Factors Before Taking a Car Loan
Pre-Closure Penalty
Before finalizing your loan, check whether the bank charges a pre-closure penalty—a fee for repaying the loan before the end of its tenure. These charges vary across banks. It’s wise to choose a bank that either waives or charges minimal penalty fees.
Processing Fees
Almost every bank charges a processing fee to handle loan applications. Sometimes, even if a bank offers a lower interest rate, it may recover costs through high processing fees. Always inquire about this fee in advance to know the total cost of your loan.
Special Offers and Schemes
Banks frequently introduce special festive offers or limited-period schemes on car loans. These may include reduced or waived processing fees, no pre-closure penalties, up to 100% on-road funding, discounted interest rates, or gift vouchers. Borrowers with strong credit profiles often get the best deals during such periods.
Documents Required for a Car Loan
To apply for a car loan, you’ll typically need the following documents:
- Aadhaar card, PAN card, and driving license for identity proof.
- Salary slips for the last three months to verify income.
- Bank statements for the past six months.
- Employment proof or company ID card.
- Car quotation from the dealer.
With car sales booming and banks offering competitive rates, this may be the ideal time to buy your dream car—but only after comparing loan terms and calculating total costs carefully.
