What Is a Car Loan? Complete Guide to Auto Loans in India

Table of Contents

• What is a Car Loan?
• How Do Auto Loans Work?
• Features of Auto Loan
• How to Compare Auto Loans
• What Credit Score Is Used for Auto Loans?
• Credit Score Required for Car Loan
• Types of Vehicle Loans in India
• New Car Loan Vs Used Car Loan
• Factors to Consider When Getting an Auto Loan
• Frequently Asked Questions (FAQ)

Key Takeaways

•    A car loan is a secured loan where the vehicle acts as collateral.
•    Piramal Finance offers flexible vehicle loan options with competitive rates.
•    Choose from dealer financing, banks, NBFCs, or online lenders.
•    Good credit score (typically 700+) improves your loan eligibility.
•    Compare interest rates, processing fees, and prepayment options before applying.
•    Piramal Finance supports both new and used car loans with hassle-free applications.

What is a Car Loan?

A car loan is a financial product that allows individuals to purchase a vehicle by borrowing money from a lender. The borrower repays the loan over time through EMIs (Equated Monthly Installments). The vehicle itself acts as collateral, making this a type of secured loan.
In India, car loans are provided by banks, NBFCs, and online platforms. If you are looking to own your dream car, a vehicle loan simplifies the purchase without a large upfront payment.
"Car loan meaning? It's simply borrowing now to own your car today and repaying it in comfortable EMIs."

Expert Tip: Applying for car loan is too easy. For those who are worried about credit scores can consider Piramal Finance for a easy car loan option. In case of a small budget you can even consider applying for a used car loan and buy a 2nd hand vehicle saving you a big money.

How Do Auto Loans Work?

Car loans can be availed through different channels, each offering unique advantages:

Dealer Financing

•    Offered directly at car dealerships.
•    May come with bundled deals but could have higher interest rates.

Banks and NBFCs

•    Traditional route with stable interest structures.
•    NBFCs like Piramal Finance offer faster approvals and less stringent documentation.
•    Ideal for salaried and self-employed borrowers alike.

Online Auto Loans

•    Digital lenders provide instant approvals and pre-approved offers.
•    Convenient but requires strong credit scores.

Features of Auto Loan

•    Loan Amount: Up to 100% of on-road price
•    Tenure: 1 to 7 years (up to 5 for used cars)
•    Interest Rate: Fixed or floating
•    Prepayment: Allowed with or without penalty
•    Collateral: Vehicle remains hypothecated until repayment
•    Quick Processing: Piramal Finance offers fast-track disbursals

How to Compare Auto Loans

When choosing the right car loan, assess:
•    Interest Rate (Annual Percentage Rate)
•    Processing Fees
•    Prepayment Terms
•    Customer Service and Transparency
•    Loan-to-Value Ratio (LTV)
Use this guide: tips to manage your car loan emi

What Credit Score Is Used for Auto Loans?

Lenders in India commonly use the CIBIL score. It ranges from 300 to 900. A score above 700 significantly improves chances of approval and lowers your interest rate.
Credit Score Required for Car Loan
•    Excellent (750+): Eligible for best rates and pre-approved loans
•    Good (700–749): Eligible with favorable terms
•    Fair (<700): May face higher interest or need co-applicants/guarantors

Types of Vehicle Loans in India

•    New Car Loan: For brand-new vehicles
•    Used Car Loan: For pre-owned cars
•    Commercial Vehicle Loan: For transport and logistics businesses
•    Two-Wheeler Loan: Bikes and scooters

New Car Loan Vs Used Car Loan

Factors to Consider When Getting an Auto Loan

•    Your Credit Score
•    Loan Eligibility & Income
•    Down Payment Capacity
•    Car Type (New or Used)
•    Repayment Flexibility

Frequently Asked Questions (FAQ)

Can you pay off a car loan early?

Yes, most lenders allow prepayment, though some may charge a penalty.

What is a car title loan?

A short-term loan where the vehicle title is pledged as collateral.

What is a finance charge on a car loan?

It includes total interest and fees over the loan's life.

What is a good credit score for a car loan?

Typically 700 and above for favorable terms.

What is refinancing a car loan?

Replacing your existing loan with a new one to reduce EMI or interest rate.

What is a maturity date on a car loan?

The date when the loan tenure ends, and the last EMI is due.

What is GAP insurance on a car loan?

It covers the difference between the car's market value and outstanding loan in case of theft or total loss.

What is the payoff amount on a car loan?

The total amount needed to close the loan before maturity.

Final Thoughts

Whether you're purchasing a brand-new car or considering a second-hand vehicle, understanding what is a car loan and how auto loans function in India is crucial. Piramal Finance is committed to providing transparent, affordable, and fast car financing solutions to help you own your dream vehicle.