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Car Loans: Eligibility, Documentation & Procedure

Created on 27 Feb 2023

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The process of purchasing a car can be exciting, but it can also be daunting, especially if you plan to take out a car loan. However, with the proper information and planning, the process can be simple. In this article, we will aim to analyse car loan eligibility, the process, and the tools available, such as NBFCs and a calculator, to support you in making informed decisions.

The journey of life is similar to that of a car. Going in reverse won't get you where you want to go, but if you speed up and don't take time to enjoy your surroundings, you might end up lost. This line of reasoning is an excellent analogy for car loans. You must move forward and take calculated steps, but you must also slow down and enjoy the process. Rushing into a car loan without first carefully considering your options and eligibility can result in financial hardship and regret.

Eligibility of Car Loan

The first step in getting a car loan (also called an auto loan) is figuring out your eligibility. Lenders evaluate your eligibility based on several factors, including your income, credit score, and, most importantly, your employment status. In general, lenders consider the following factors when determining eligibility for a car loan: a steady income, a good credit score, and a dependable job.

Types of car loan

Car loans are a common method of financing the purchase of a vehicle. They provide borrowers with the funds needed to purchase a car and allow them to repay the loan over a set period of time. Car loans frequently include a number of terms, such as the amount borrowed, the length of the loan, and the interest rate associated with the loan. As a result, car loans offer significant advantages to consumers by allowing them to spread out their costs and make owning a car more affordable. There are various types of car loans available, each with its own set of features and benefits.

New Car loan 

A new car loan is a loan designed for people who want to purchase a brand-new car. The loan amount is determined by the car's value, and the borrower must make monthly payments, including interest and principal, until the loan is paid in full. The primary benefit of a new car loan is that the borrower can obtain Financing for the entire purchase price of the vehicle, which is not always the case with used car loans. Because the car is new and has fewer likely mechanical issues, new car loans have lower interest rates than used car loans.

Used Car Loan

A used car loan is a type of car loan that is designed for people who want to buy a used car. The loan amount is determined by the car's value, and the borrower must make monthly payments, including interest and principal, until the loan is paid in full. The primary benefit of a used car loan is that the borrower can buy a car at a lower cost than a new car. Used car loans, on the contrary, have a more expensive interest rate than new car loans. This is due to the fact that used cars are more likely to have mechanical issues.

Loan Against the Car

A loan against the car is a type of secured loan in which the borrower uses the vehicle as collateral. The loan amount is determined by the car's value, and the borrower may make monthly payments, including interest and principal, until the loan is fully repaid. The primary benefit of a loan against a car is that the borrower can obtain financing quickly without going through the lengthy process of applying for a personal loan. Loans against cars, on the other hand, frequently have higher interest rates than new or used car loans, and the borrower risks losing their car if they are unable to make payments.

Process of car loan 

Car loan applications are processed instantly in the Internet age. It is not the bank's decision to begin the process if you apply for a car loan online or offline and submit all required documents.

The process of obtaining a car loan from a bank or non-banking financial company (NBFC) is relatively simple. Although the exact process varies with the lender, the basic steps are the same. The first step is to figure out how much money you need and then find the best lender for you. This can be accomplished by comparing interest rates, repayment terms, and other aspects of various loan offers. You should also think about any additional fees or charges associated with the loan. After you've decided on a lender, you'll need to submit your loan application. Personal information, such as your name and address, and financial information, such as your income and expenses, are typically required. You may also be required to provide proof of your income or employment, such as pay stubs or tax returns, depending on the lender. Once your loan application is submitted, the lender will review your information and make a decision about whether or not to approve you for the loan.

Once your loan application has been approved, you will need to sign the loan documents and provide any collateral that is required by the lender. This could include the title to the car or other assets, such as a home or business. Finally, once the loan has been approved and funds have been disbursed, you must make regular payments on it until it is paid in full. It is critical to make your payments on time to avoid late fees and potential credit score damage. Overall, obtaining a car loan from a bank or NBFC is a relatively simple and straightforward process. You should be able to secure a car loan without any major issues if you compare loan offers and provide the necessary documents and collateral.
Interest rates of different bank

Bank Name

New Cars 

Pre-owned Cars

EV Cars

Axis Bank

8.5% - 13.05%

15% onwards



7.5% - 15.5%

13.75% onwards

8.75% onwards

Bank of Baroda


11.90% - 14.45%

8.45% onwards

Canara Bank

9.25% - 11.95%

9.25% - 11.75%

8.80% onwards

SBI Bank




Kotak Mahindra Bank

7.70% - 25%

8.90% onwards

7.75% onwards

Punjab National Bank

8.95% onwards

9.9% onwards

8.90 onwards


8% onwards



Eligibility criteria for EV car loan

The eligibility criteria for obtaining a car loan to purchase an electric vehicle are the same as for a conventional vehicle. The same documents that are required to prove your age, income, identification, and address are required, though these criteria and documents may differ from bank to bank.

Car loan interest rate for EVs

There are banks that only offer car loans for the purchase of electric vehicles. The State Bank of India currently offers a Green Car Loan for this purpose. The interest rate on this loan has been reduced by 20 basis points. SBI provides a loan for up to 90% of the cost of the vehicle. Axis Bank is another bank that provides car loans for electric vehicles, offering up to 85% of the car's on-road price as a loan.

Car Loan EMI Calculation

EMI stands for Equated Monthly Instalment and is one of the most important components of a car loan. It is the fixed amount of money that a borrower has to pay each month to the lender for the entire loan tenure.

To calculate EMI on a car loan in India, you can use the following formula:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Where P= Principal Loan Amount, R= Rate of Interest, N= Tenure (in months)

For example, if you take a car loan of ₹5 lakh at an interest rate of 10% p.a. for a tenure of 5 years (60 months), then your EMI will be calculated as follows:

EMI = [5,00,000 x 10% x (1+10%)^60]/[(1+10%)^60-1]
       = ₹10,772
Thus, you will have to pay ₹10,772 each month for 60 months, or 5 years in order to repay your car loan.

The Bottom Line

Owning a car is an important milestone in a person’s life (even if you are a bike person). However, not everyone can afford it with liquid funds available to them. This is where a little external help goes a long way.

But one does not willy-nilly go about availing any loan that is thrown their way. Loan salesmen will do their best to lure you into taking loans from their organisation, but borrowers need to practise a little “caveat emptor” and find what suits their finances the best.

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Shivam Vallecha

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Shivam is a PGPM student at ICFAI Business School Pune. He participates actively in social activities and believes that people should be the change rather than just seeking it. The majority of his time is spent reading, but he also enjoys binge watching. His belief is that people must dream big and work hard in order to grow each day and achieve their dreams. 

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