Loan against a car is a new type of financing that is quickly gaining popularity. Normally, a loan is offered to pay for an automobile, but nowadays, banks will also make loans based on an existing vehicle. This provides an additional source of funding for an individual.
Because this is a loan secured by collateral, rates are favourable. This loan is provided by a few banks, including HDFC Bank, Kotak Mahindra, and others; banks do not actively promote it. It functions something like a top-up loan if you already have a car loan.
The interest rates for this loan start at 13.5% for HDFC Bank and go from 14.5% to 14.50% for Kotak Mahindra Prime. If the car being financed is old and worth less, interest rates could reach 17–18%.
However, the rates are lower than those for personal loans. The disbursement is also quicker when a top-up loan against autos is involved. The same requirements for documentation apply to all loans. For instance, this top-up loan is disbursed by HDFC and Kotak Prime in two to three business days. For the length of the loan, the asset is hypothecated.
The price of the car will decrease in value, thus there is a different kind of risk the bank will bear in this scenario than there is in the case of other assets, like a house, against which one might obtain a loan. One requirement for this type of loan is that certain banks will only lend to existing customers who may have have taken out a car loan because the lender has established a relationship with the consumer and is familiar with the client's information.
The bank will typically lend you between 70 and 80 percent of the car's current market value. The car doesn't have to be brand-new. Even a used car can be used as collateral for a loan. However, your automobile will be worth less and you will receive a smaller loan if you take out a loan against a vehicle that is more than a year old. The first year is often when a car's value depreciates the most.
For private vehicles, the HDFC Bank won't grant a loan until the vehicle is at least six years old, and seven years for commercial vehicles. Depending on how old the vehicle is, the loan can last up to 60 months."""