We have discussed several ways of raising funds in times of need. We have talked about many other ways of raising quick funds such salary loans, personal loans, gold loans, loan against securities or mutual funds. In this post, let’s look at another way of raising funds in times of need — Loan Against Car. I am not talking about a loan that you use to purchase a car. I am talking about loan against a car that you already own. In this post, let’s discuss a loan against car product from HDFC Bank. Other banks and NBFCs have similar loan features and eligibility.
HDFC Bank Loan against Car: Eligibility and Salient Features
- Minimum annual income: Rs 2.5 lacs
- Both salaried and self-employed can apply
- Salaried: Minimum age 21 years, should be working for at least 2 years and a minimum of 1 year with current employer
- Self-employed: Minimum age 31 years, should be running the business for a minimum of 3 years
- Car fleet owners can also apply
- You can get a loan against a car that has been financed by a loan from HDFC bank or from any other lender. If your lender is different, you will have to transfer your existing loan to HDFC Bank. This may entail some cost
- The car should not be more than 5 years old at the time of loan application
- The loan is available against all kinds of hatchbacks and sedans (except for some out of production models). You will have to check with your nearest HDFC Bank branch
You can read the eligibility criteria in detail on HDFC Bank website.
How Much Loan Can I Get?
The loan amount will depend on the market value of your car. Though not explicitly stated, the model and make of your car, car usage and the reputation of car model may also play a role. Though the exact LTV is not clearly defined on the website, it is reasonable to expect that loan amount will not exceed 70-80% of the car value. If you have an existing loan on car, you can deduct your outstanding amount from your loan eligibility.
If your car is financed by HDFC Bank, there may be verification/valuation depending upon your credit requirement. Clearly, if the loan amount is bigger, the bank may turn a bit cautious. By the way, if your car is already hypothecated to HDFC bank, the loan disbursal can be quite quick. If it has been financed by another lender, you will have to go through a valuation exercise.
As I understand, if the car is not purchased on loan, you cannot apply for this loan against car. This is because you need to submit record of repayment of car loan for the last 9 months. You can’t have a repayment record if you do not have a car loan. Therefore, you can think of this loan as more of a top-up car loan.
Do You Need to Provide Additional Security? No. There is no need to provide additional security or arrange for a guarantor. The car itself is the security.
What Are the Documents Required to Avail This Loan? You need to provide KYC documents and legal documents of your car. You can get the complete list here.
What Is the Loan Tenure for Loans against Car?
The tenure can vary across lenders. At the same time, the age of your car can also limit the loan tenure. The tenure for loan at HDFC Bank ranges from 12 to 60 months. However, at the time of loan maturity, the age of the vehicle should not exceed 7 years for private vehicles and 6 years for commercial vehicles. Therefore, if your car is 4 years old, the loan tenure cannot exceed 3 years.
What Is the Rate of Interest? What Are the Other Charges?
The interest rate (as mentioned on the HDFC Bank website) ranges from 14% p.a. to 16 p.a. The rate depends on the age and segment of the vehicle. The interest rate appears to be on the higher side. You may be able to avail a personal loan at a lower rate. However, the interest rate data on less popular products may not always be updated. Processing fee is 1.5% of the loan amount subject to a minimum of Rs 2,500 and a maximum of Rs 5,000. Foreclosure is not allowed within 6 months of disbursal. Prepayment penalty ranges from 3% to 6% depending upon when you prepay the loan. For the complete list of charges, you can visit this page on HDFC Bank website.
What Is the Benefit of Loan against Car?
It is a secured loan. Therefore, you can expect the loan interest rate to be lower as compared to a personal loan. That is the biggest advantage. Moreover, it is easier to get a secured loan. By the way, you could have sold your car to arrange funds. Subsequently, you could have purchased a second hand or a new car after some time (when the mini financial crisis was over). However, by opting for this loan, you can continue to use the car and use it to raise the funds. You may need a car to maintain your life style or continue your business. In terms of utility, even a 5 year old car may have the same utility as a new car (even though a new car is way more expensive). That’s true, at least for me. However, if you were to sell your old car to arrange funds and try to own a car again later, you may have to shell out a lot more.
What Is the Flip Side?
There is interest cost. There is processing fee. There is heavy prepayment penalty. Moreover, as with any loan, it is not wise to take a loan if you can’t repay it. If you can’t repay the loan, the bank will take possession of the car. Therefore, you need to think through these aspects before you sign up for this product.