Automobile loans are one of the largest markets in India for lenders. And the future holds more for this sector. Due to India’s ever expanding middle class, growth in rural incomes and minimum wages and introduction of the 7th pay commission will definitely be a catalyst for growth in automobile sales. This in turn will increase the quantum of loans in times to come.
Loans for automobiles broadly speaking are categorized across two segments by most Automobile Loan Lenders. An automobile loan will be either a car loan or a two wheeler loan. Majority of the lenders provide cover financing for both these segments.
Car loans can further be sub-divided into Pre-Owner Car Loan (purchase of an old car) and New Car Loan. The same segmentation is also done for two-wheeler loans. But instead or old two-wheeler loans, the more common segmentation is that of Standard Bike Loan and High End Bike Loan.
It will be beneficial to take a deeper look at the common trends in the Indian market for such a loan. There are numerous variables that determine the rate charged and the tenure for the loan. Moreover, to ensure safety of women the interest rates usually are lower for women borrowers as compared to males.
Car Loan
The rates charged for new automobiles depend on the income of the borrower, type of income (permanent or temporary) and the amount of loan taken by the borrower. Needless to say the features will be different for new and old 4 wheeler loans. The valuation of new cars need not be done since they have a market price, but the Pre-Owned car loans are extended only after the lenders’ valuation of the used car. Therefore certain lenders give preference to Certified used cars and charge a lower interest rates (~150 bps lower) as compared to other non-certified Pre-Owned Car Loans.
| CRITERIA | NEW CAR LOAN | PRE-OWNED CAR LOAN |
| Eligibility | The eligibility criteria for both the type of loans remain common. The following are the eligibility criteria:
· The age of the borrower should be between 21 to 60 years · Certain lenders require you to have held a job for at least 2 years or 1 year with the current employer · Lenders may also confirm the residential stability before extending such a loan · For Salaried Individuals the annual income of the individual should be permanent and usually above INR 300000 p.a. · For Self employed individuals the Net Earnings should be around INR 400000 p.a. (All income quotes are meant for the borrower and co-applicant cumulatively- both combined must have the stipulated income) · But there are some lenders in the market that provide loans to self-employed borrowers earning around INR 60,000 for small cars and INR 150,000 for mid-sized cars. · The financing is made on the on-road price or the ex-showroom price. This will be specified very clearly by the lender. The range to which financing is done varies from lender to lender. There are lenders that also provide 100% financing for New Car Loans. · NRIs too are eligible for such a loan |
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| Documents required | · Last 6 months Bank account statement
· 2 passport sized photographs · Passport Copy, Voter ID or PAN Card ( All should be self-attested) · Last 3 months Salary Slip mentioning all deductions · Form 16 filings of last 2-3 years (whether borrower is salaried or not) · In case of a self employed or business owner the official address should be provided · Some lenders may also require the proof of business i.e. the last 3 years balance sheet and P & L account |
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| Margin Money | All New Car loan require the borrower to pay a minimum sum out of the requested amount. This represented as a % and is generally in the range of 15 % of the total loan value. The balance is then extended to the borrower as a loan | Certain Pre-Owned car loans require very low down payments, as low as 5% in certain cases. |
| Tenure | New Car Loans generally will be costlier and therefore mostly would require a greater loan amount. This would mean the time taken to repay the loan would usually be more in the case of New Car Loans. This is generally in the range of 48-84 months. SBI for instance is known for providing the longest tenure for a New Car Loan in the Industry i.e. 84 months or 7 years | It is safe to assume that Pre-Owned Car Loans on an average will be of a lesser amount as compared to new home loans. Majority of the buyers of cars would prefer a new car if they are paying a high value for it. Therefore the tenure of the Pre-Owned car loans is shorter. On an average the loans are for a tenure of 24-36 months. |
| Collateral | For loans over a stipulated amount the car itself will act as collateral. | |
| Funding Ranges | Most lenders provide a schedule representing the amount they are willing to fund for a particular size or cost of car (for instance, 80% of the ex-showroom price for New Car Loans or 80% of the valuation in case of a Pre-Owned car loan). Lenders provide 100% funding in certain car segments. The proportion funded can also be as low as 75% in certain segments. | |
| Interest Rate | The interest rate charged on new car loans is generally lower as compared to Pre-Owned car loans. This is in the range of 9.5-11 % across the industry. | Usually around 15% for non-certified cars and ~13.5% on certified cars. |
| Processing Fee and Documentation charges | The processing fee on New Car loans ranges around | |
Two-Wheeler Loans
As mentioned before, majority of the lenders provide two-types of two-wheeler loans. One type is for standard bikes and the other category is that of the High end bikes. The loan amount, eligibility, interest charged and processing fee will differ across the two segments.
| Criteria | Standard Bike | High End (above 500cc or >~ INR 150,000 |
| Age | 21-65 years | 21-65 years |
| Maximum Loan Value | Up to INR 150000 | Some lenders can provide loans up to INR 40,00,000 on super bikes (TATA Capital) but average loans generally would be in the range INR 2,00,000 to 3,50,000 |
| Loan to Value | Can be up to 80-95 % of the loan amount. Very few lendesr currently would lend 100% of amount | Is generally in the range of 50-65 % of the loan value but it could go up to 70 % in certain cases |
| Margin Money | ~5-15% | ~35-45 % |
| Minimum Income Criteria | For Standard bikes the general industry convention followed is to lend a maximum of 6 times your monthly salary for a standard bike loan. In other cases the loan amount is restricted to not more than 50% of the Annual Salary of the borrower. For self employed individuals or business owners the annual net earnings should be around INR 75000
It is also required by lenders for the borrower to have a stable job. |
For salaried individuals the annual salary should be close to around INR 600,000 per annum. Loans on superbikes have a requirement of an annual salary of ~INR 15,00,000. Employment stability in both the above mentioned cases will be required (min. of 2 years) |
| Documents required | · 2 photographs required
· Address Proof · Identity Proof · Income Stability · Income proof · Balance Sheet + P&L Account for 3 years in case of business owner or self-employed · Income Tax Returns for the last 3 years (For self-employed/business owner) · Proof of official address
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| Processing Fee + Documentation charges | The lowest processing fee in the market is close to 1.2% of the loan amount. This may differ from lender to lender.
The documentation charges are usually in the range of 2 % of the loan amount. All borrowers must know the service fee charges before hand. |
Usually the processing fee is in the range of % of the loan amount but could be higher for super bikes (Close to 5%).
The documentation charges on high end bikes and super bikes will generally be above 2.5% and 5% respectively. |
| Interest Charged | Has a very wide range depending on the income stability of the borrower Usually falls in the range of 11-18% p.a. | Around 12-15 % p.a |
| Tenure | Maximum Tenure of up to 7 years. On an average the loans are usually between 48-60 months | On an average for a period of 5-7 years. There isn’t usually a maximum tenure provided on high end bike loans. |
| Pre- Payment Charges |
Usually such loans have certain pre-payment charges that need to be kept in mind. The period within which a pre-payment charge is applicable varies from lender to lender. It usually is for 6-12 months on an average. |
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