2 Wheeler Loan for Low Income (Rs.4000-15000) Earners: Income Reqd. by 18+ Lenders

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Sales of two wheelers (scooters, motorcycles and mopeds) in India has been rising since last 5 years. Here’s the data from Society of Indian Automobile Manufacturers (SIAM) showing the domestic sales trend of two wheeler:


Despite this meteoric rise in demand for 2 wheelers, many people still cannot afford to buy their own vehicle. Because, for such individuals the cost is a concern. And for such individuals who cannot buy because of money, two wheeler loan is the solution.

There are multiple eligibility criteria before a two wheeler loan application is approved. And the most important being the income. It is the only factor through which lenders evaluate whether the applicant has repayment capacity. Although lenders also consider CIBIL score to judge credit worthiness of the applicant. Income is the very first thing checked.

Read about 2 wheeler loan for students.

Listed below is the minimum monthly income required by two wheeler loan providers in India:

Since two wheelers are not very expensive (assuming you are not buying a very high end bike). The income eligibility criteria is not very high compared to car, home and personal loan.

Name of the bankMinimum Monthly Income Required
HDFC BankRs. 7, 000 - Rs. 8, 000
Tata CapitalIncome not mandatory
Mahindra FinanceNo income proof required
IndusInd BankRs. 10, 000
State Bank of IndiaRs. 5, 000 - Rs. 6, 500
Tamilnad Mercantile BankRs. 6, 250
Hero FincorpNo income proof required
United Bank of IndiaRs. 15, 000
Muthoot CapitalRs. 8, 000 (salaried) - Rs. 10, 000 (self employed)
Central Bank of IndiaRs. 10, 000
Karnataka BankRs. 4, 000 - Rs. 5, 500
Punjab National BankRs. 10, 000
Bank of MaharashtraRs. 25, 000
Dena BankRs. 8, 250
Oriental Bank of CommerceRs. 10, 000
Allahabad BankRs. 15, 000
Indian Overseas BankRs. 5, 000
Syndicate BankRs. 4, 500

There are many other prominent lenders (listed below) offering loan for bikes, but their income requirement is not available.:

  1. ICICI Bank
  2. Canara Bank
  3. Bank of Baroda
  4. Bajaj Finserv
  5. IndusInd Bank
  6. Fullerton India
  7. Bajaj Finance
  8. L&T Finance & others

There are some lenders who do not ask for any income or income proof. However these lenders ask for guarantors, employment/business and residential stability, bank statement.

Other features in 2 wheeler loan:

Loan amount: Not all banks offer 100% finance for the two wheeler. Typically 85% – 95% of the invoice price of the vehicle is provided.

Pre-closure: Since the loan amount is small, it is recommended to close the loan as early as possible before the standard tenure. Although financiers will charge a small fee for pre-closure, it is worth doing it. This has two important benefits – credit score will be positive and money is saved as burden of EMI reduces.

Start building credit score: If you are taking loan for the first time for 2 wheeler, then it is an excellent opportunity to start building your credit score. Since loan amount is small, regularly paying-off EMI will put you in good book of lender and credit bureau. Apart from regular EMI payment before last date, you need to follow very simple rules to improve credit score –

  1. Never pay minimum balance and always pay in full
  2. Never show hunger for too much of credit. And do not apply for too many credit applications in a short span of time.
  3. Never do card settlement
  4. Stay away from balance transfer
  5. Do not spend over the credit limit
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9 Ways to Save Money on Car Loan – Down Payment, Low Interest & more

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The cost of four wheeler is very high. And if you are planning to take a loan and include other charges such as interest rate, processing fee, etc. the overall cost further increases. And all these charges are unavoidable. And that’s how lenders earn profit.

So how to save money on car loan?

When considering taking loan for car (new or second hand), you should look for following ways to save money:

Make higher down payment: Make as much down payment possible. So for e.g. if cost of car is Rs. 7, 00,000 (7 Lakhs) and bank is ready to offer 100% loan amount. Then you will have to pay interest on the whole amount i.e. Rs. 7, 00,000. However if you make a down payment of Rs. 2, 00,000; then your monthly EMI burden will straightaway reduce. This is because you will be paying interest on the borrowed amount of Rs. 5, 00,000 only. So try to make as much down payment possible. Utilizing the money received via bonus or salary increment or others should be used to contribute for the down payment.

Make full or partial pre-payment: It is also called as loan foreclosure. Try to make all the loan EMI repayments as early as possible. Even before the standard tenure ends. It definitely saves you money. However check with the lender on the pre-payment penalty and calculate the total saving. The difference should make sense. In either case, early loan closure is always recommended as this is considered as a good credit behavior. It is a positive signal to the credit bureaus giving credit score. Money received through bonus or salary increment should be first used to pay-off the debt. If not 100% prepayment, try to make partial pre-payment.

Check out minimum income required for car loan.

Choose low interest loan: Opt for lenders offering lowest interest rate. If you are an existing customer with the lender then bargain on interest. If you are in the good books of the lender then chances of low interest are high. Instead of losing a customer because of interest rate, they would be reduce the same and retain you.

Latest – 2017 car loan interest rate on new and used car.

Research and then buy: Never fall into the trap of the car dealer claiming to offer car loan at cheapest rate. Always do your own research and check what other lenders are offering. Factors to compare are interest rate, processing fees, pre-payment charges etc. Remember it’s your money.

Opt for short tenured loan: You should try to reduce the repayment tenure to as short as possible. Longer the tenure, higher would be the interest paid and the total cost of four wheeler will further increase. Objective is that your purchase should not become costly.

Know the hidden charges: Apart from the interest rate, banks also apply processing fees, pre-payment penalty, and many others. First of all, you should be aware of all these charges. And if you are an existing customer with the bank with good credit history; then ask them to reduce or remove all these charges. Even if one of the fee is removed or fee is reduced; reasonable amount of money will be saved.

Loan transfer: Although it is not very easy, but if other bank is offering cheaper rate then you should transfer the loan. You will have to pay a penalty. But if the total saving is higher, then definitely you should opt for car loan transfer.

Read tips on choosing car loan or personal loan for car.

Opt for fixed or floating rate: There are two types of interest rate applied fixed and floating. In case of former, the interest rate is constant throughout the tenure. And in case of latter, it keeps on changing. However if the market trend estimates that loan rates may fall in the coming time, then opt for floating rate as your EMI would be low. However if you do want to take risk, then opt for fixed interest loan. Very few banks offer these two options. Otherwise fixed rate is most commonly applied.

Check your CIBIL score before applying: The most important thing to do is to get credit report from CIBIL or other credit bureaus. And verify whether the details are correct or not. Many a times; credit data reported by member banks to CIBIL are inaccurate. So if you apply for loan and banks see incorrect data, then chances of loan rejection increases. And even if banks are ready to provide loan even if the CIBIL score is poor (although the chances are low), the interest rate will be on a higher side. So if your CIBIL score is poor then first work towards it’s improvement. And then apply for loan.

Remember money is money – whether small or big. Always try to save money wherever possible.

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Car Loan: Minimum Income Required by 21+ Banks/Finance Companies

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You must have come across many advertisements like “Get car loan in 2 minutes”, “Own a car with a click of mouse” and many others. So exciting to read this. However in reality, getting a car loan is not that easy.

Lenders take into consideration various factors before approving loan. And the most important criteria is the income of the applicant. The only way credit lending companies such as banks, finance companies and others evaluate repayment capacity of the applicant is the income. Different lenders have varying minimum income eligibility criteria.

Listed in the below table is the income required by various lenders – public, private, and co-operative banks, financial services companies:

Name of BankMinimum Monthly Salary Required
City Union BankRs.12, 500
Jammu and Kashmir BankRs. 17, 000 - Rs. 33, 333
Abhyudaya Co-operative BankRs. 10, 000
Indian Overseas BankRs. 5, 000
Oriental Bank of CommerceRs. 20, 000
State Bank of IndiaRs. 21, 000
HDFC BankRs. 21, 000
Axis BankRs. 20, 000
Allahabad BankRs. 25, 000
Canara BankRs. 25, 000
Dena BankRs. 21, 000
Punjab National BankRs. 20, 000
Dhanlaxmi BankRs. 10, 000
Ratnakar BankRs.8, 200 - Rs. 62, 000 (Depending on the car type)
Kotak Mahindra BankRs. 15, 000
IndusInd BankRs. 21, 000
Magma FincorpRs. 12, 500
United Bank of IndiaRs. 25, 000
Tamilnad Mercantile BankRs. 10,000
Mahindra FinanceRs. 17, 000 - Rs. 21, 000
Renault FinanceRs. 25, 000
Magma FincorpRs. 12, 500

Apart from the above listed lenders there are many other lenders offering car loan as mentioned below. However their income requirement is not available. You will have to contact the bank directly for knowing this.

  1. IDBI Bank
  2. Maruti Finance
  3. Saraswat Bank
  4. Hero FinCorp
  5. Sundaram Finance
  6. Bajaj Finance
  7. Tata Capital
  8. Tata Motors Finance Limited

Other eligibility criteria for car loan are:

  • Years of employment
  • Employment/business stability
  • Age above 18 years and less than 70 years. (This varies for each lender)

If you do not have the required income then chances of denial increases. However there are few other options to get loan for buying car such as:

  1. Loan against fixed deposit
  2. Loan against LIC policy
  3. Personal loan for car

4 things to do before applying for a car loan:

  • Check credit score: Your car loan application can also get rejected because of bad credit. Many people are still not aware of credit score or they do not take it seriously. However for a financial institution; credit score is extremely important to evaluate credit worthiness of the applicant. Credit score is given by credit bureaus. They calculate this score based on the credit history of borrower. And this financial history is provided to the bureaus by the member banks. So before applying for a loan, get your credit score checked. Read more on car loan for bad credit.
  • Loan tenure: Always take shortest loan tenure. Longer the repayment period, higher would be the total cost of the car. Although you will have to shell out higher interest in case of short tenured loan. But sooner you come out of debt, better would be your credit score.
  • Bargain on interest: This is especially for existing customers of the bank. If you have a long relationship with the lender, then bargain for lower interest. Recheck whether loan offered by the dealer is saving you money or not. Dealers normally try to hard sell loan from the banks which they have tie-up with. However it is your duty to do thorough research on best interest rates available in the market.
  • Hidden charges: Every bank applies various other charges apart from the interest rate and late payment. These charges are – part and full prepayment, processing, documentation, cancellation and others. So before signing on the dotter letter, reverify and compare these charges. These charges are actually not hidden as banks do not hide them. It is actually the applicant’s mistake who do not read the fine print.

Saving money should be your ultimate goal while taking car loan. i.e. how much money you can save on car loan – either on interest rate, processing fees, etc.

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Personal Loan Income Required by 27 Banks in India

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Your income is the most important criteria checked by the lender when approving personal loan application. Every lender has minimum income requirement below which loans are straight away rejected.

Here’s the table showing income required for personal loan by over 27 banks/financial services companies in India:

Name of BankMinimum Monthly Salary Required
City Union BankRs. 6,500
Jammu and Kashmir BankRs. 6,500
Abhyudaya Co-operative BankRs. 8,000
The Andaman and Nicobar State Co-operative Bank Ltd.Rs. 5,000
The West Bengal State Co-operative Bank Ltd.Rs. 2,000
Karnataka BankRs. 10,000
Karur Vysya BankRs. 10,000
Indian Overseas BankMore than Rs. 5000
Oriental Bank of CommerceMore than Rs. 6000
State Bank of IndiaRs. 24,000 - Urban
Rs. 10,000 - Rural and semi-urban
HDFC BankRs. 20,000 - Urban
Rs. 15,000 - Rural and semi-urban
Axis BankRs. 15,000
YES BankRs. 25,000
ICICI BankRs. 20,000-25,000 - Urban
Rs. 17,500 - Rural and semi-urban
Allahabad BankRs. 20,000
Canara BankRs. 25,000
Dena BankRs. 15,000
Punjab National BankRs. 30,000
Dhanlaxmi BankRs. 35,000
Federal BankRs. 50,000
Nainital BankRs. 25,000
Ratnakar BankRs. 25,000
South Indian BankRs. 25,000
Kotak Mahindra BankRs. 25,000
IndusInd BankRs. 25,000
Deutsche BankRs. 25,000
Bajaj Finance LimitedRs. 30,000 - Rs. 40,000 (Depending on the city)

Apart from the salary; banks or financial service providers also look for following eligibility criteria:

CIBIL score: This is a score given out of 900 to every borrower depending on the credit history. A good score is typically above 750. Anything below that increases the chances of loan application rejection. In order to get high CIBIL score, few of the solutions are –

  1. You should never keep credit balance
  2. No late or missed payments
  3. Pay EMIs fully. No minimum balance to be paid.
  4. Limited loan/credit card applications
  5. Not spending above the credit limit i.e. credit utilisation should be low.

Type of income: Whether you have a regular or irregular income matters a lot. Even if you have a high income but if it is irregular, then chances of personal loan disapproval increases.

Read on getting personal loan from co-operative bank.

Company you work for: The market reputation of the company you work for carries importance.

How many years you have been in the present job? Lenders also look for the applicant’s job stability. And if the applicant is self- employed then years in the business is considered. Although this criteria is considered by very few lenders.

Age: Most lenders do not offer loan to applicants below the age of 21 years. This is because, it is assumed that such individuals will not have repayment capacity due to no income.

Qualification: If the applicant is not a graduate then getting a loan becomes difficult. However if such individuals have a steady income, then banks can consider such applications.

Other options to get personal loan, if you are denied because of low income are:

Against fixed deposit: It’s a big money saver as the rate of interest charged by the bank is low compared to traditional personal loan. Moreover banks typically skip criteria such as monthly salary, CIBIL score etc. as mentioned above.

You can also get personal loan against LIC policy, securities such as mutual funds, shares, gold. Peer to peer lending is another good option to get loan.

So for a low income earning person, there are multiple options to get personal loan. But always remember to pay-off your EMIs before every due date.

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2017 – New & Used Car Loan Interest Rate by 17 Banks in India

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Owning a car – new or second hand gives a sense of pride to the owner of the car. However the efforts required to own a car is not easy. This is because, not everyone has required financial support to buy car. And this is when car loan is helpful.

There are many financial institutions offering car loan for new and used car. The key factor to be taken into consideration when taking any loan is the interest rate and other charges such as processing fee, pre-payment penalty, etc.

Listed in the below table is the interest rate on new car and used car by 17 banks in India:

Name of BankNew Car Loan Interest RateUsed/Second Hand Car Loan Interest Rate
ICICI Bank10.75% - 12.75%15.5%
State Bank of India9.25%10.45%
HDFC Bank9.33%13%
UCO Bank9%10.6%
IDBI Bank9.95%9.95%
Oriental Bank of Commerce10.45%12.7%
Canara Bank8.95%8.95%
Bank of Maharashtra9%9.5%
Indian Overseas Bank9.05%10.05-11.05%
Vijaya Bank9.45%11.65%
Dena Bank9.1%11.1%
Karnataka Bank9.9%13.5%
Karur Vysya Bank10.85%13.1%
Syndicate Bank10.98%NA
Punjab National Bank9.85%NA
Bank of Baroda9.6%NA
Axis Bank11.00% - 12.00%NA

High interest: So as you can see in the above table, the interest component is very high in case of used cars. The reason for having such a high interest rate is the risk associated with the used car. In case of default, even if bank tries to sell-off the used vehicle, its market value would have depreciated further.

Read more on car loan for low salaried individuals.

Factors to consider before selecting loan for car:

Loan amount: In case of new car loan, 100% loan amount equal to the value of the car is granted by most of the banks. But in case of used car, the amount is 70%-80% of the current value of the car.

Interest rate: Higher the rate, higher will the money you’ll end up paying. So select the loan with lowest interest.

Low credit score: If your credit score is low, then also you can get loan. Your income and relationship with the bank will come to the rescue.

However for the second hand car, there are further terms and conditions applied. And based on these factors, car loan for used vehicle is approved or rejected. The factors are:

1) Age of the car: Lenders offer finance to only those cars which are less than 5 years old. Few banks also limit the age to 3 years.
2) Make and model: If you are planning to buy second hand car whose make/model is no longer manufactured or has poor demand, then loan application will get rejected.

Other option to get loan for second hand car: There is only one option that remains for financing your car which is personal loan. And there are reasons to take personal loan for car.

Personal loan for car offers following advantages over car loan:

  • You can use the money for any purpose – car modification, repair works etc.
  • There is no down payment required
  • You can get personal loan against fixed deposit, LIC policy, securities such as shares, mutual fund.
  • You can buy used car irrespective of the age
  • Car remains on your name
  • No need to change hypothecation at RTO and insurance document.
  • When you take car loan, the owner of the car becomes your lender. And untill you pay-off everything, the vehicle remains in the custody of the lender. But even after repayment of all EMIs; two most important formalities need to be carried out i.e. hypothecation at Regional transport office (RTO) and name change in the insurance policy document.
  • You can sell the car even when your loan is active. This is not possible in case of car loan until all the repayments are fully paid.

Few cons of personal loan over car loan are:

Higher interest rate: Since it is a non-collateral loan, the risk is high for the lender. This is the reason why interest rate is high for personal loan.

Poor credit score: You may not get personal loan, if the credit score is poor. But there are higher chances of getting car loan, as the vehicle is under the control of the lender. Even if you manage to get personal loan, the interest rate would be high due to poor credit history.

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Personal Loan of Rs. 50000 – EMI of 4418 @10.99% Interest Rate

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Ramesh from small town recently got an excellent job from a leading IT company in India’s IT hub – Bengaluru. The salary too was above Rs. 10, 00,000 per annum. He was supposed to receive his first salary in 15 days. However emergency arise and he badly needed Rs. 50000 for medical treatment for one of his family member within 7 days. Being from a poor family and no one to support in such short span of time, he was largely worried.

In this situation, he contacted the company HR and requested the bank in which salary account was opened to offer personal loan. But since the account was with the foreign bank, the loan was denied due to no credit history. However he was advised by the HR to research and apply at other banks. Since his salary met the income eligibility criteria, chances of approval were high.

Read more on personal loan for individuals with no CIBIL score.

Here’s the table showing monthly EMI and the total amount Ramesh will end up paying along with the interest for tenure of 1 year. Current rates (as on May 2017) from different banks in India are listed. The loan amount was Rs. 50, 000. EMI is calculated using lower range of interest rate.

Name of BankInterest RateMonthly EMITotal amount to be paid
ICICI Bank11.70 – 18.85%443553225
Axis Bank15.50 - 24%452554297
State Bank of India11.95 - 16.55%444153295
HDFC Bank15.75% to 20%453154368
Bank of Baroda11.60%  to 16.60%443353197
UCO Bank15.35%452154254
Syndicate Bank14.2%449453929
Punjab National Bank11.55 – 14.55%443253183
IndusInd Bank12.99 - 20.00%446553587
Union Bank of India14.40%449953985
Oriental Bank of Commerce10.85% to 11.85%441652987
Bajaj Finserv11.99% onwards444053281
Standard Chartered10.99 - 14.49%441853026
Kotak Mahindra11.50 - 19.65%443052169

To Ramesh’s luck, he selected bank offering cheapest interest rate and got money into the bank account in less than 3 days.

Ramesh also had other options to get loan by asking someone to become guarantor and providing advance cheques. However the conditions were not favorable at that point of time for him.

Other cheaper options to arrange money for unforeseen events for individuals like Ramesh wanting small loan amount are:

  • Peer to peer lending: These are nothing but lending marketplaces where lenders are typically individuals. There is no financial institution in the middle and loans are approved within shortest period of time. Borrower can directly deal with multiple lenders and bargain on interest rates. Since the loan amount is fifty thousand only, low interest rate can be offered. Prominent peer to peer lending platforms in India are https://www.i2ifunding.com/, https://www.faircent.com/, https://www.lendbox.in/, www.lendenclub.com
  • Co-operative banks: Compared to commercial banks, taking loan from co-operative bank is much simpler. And most importantly, the interest rate is on a lower side. And for the loan amount of Rs. 50, 000; such banks are highly recommended.
  • Friends/relatives: This ideally should be the first option to be tried. Since the personal loan amount of Rs. 50000 is small, you can ask your acquaintances to pay this money and in return you can repay along with the interest. This way, both the parties would be at the advantage.
  • Against securities: You can also get personal loan against fixed deposit, shares, mutual funds, and LIC policy. Benefit of going through this route is that the interest rate would be low, which will help in saving money.
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CreditVision Tool by TransUnion-CIBIL – Features, Benefits for Lenders

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As non-performing assets and stressed assets grow bigger in size, the profitability of the financial institutions is getting affected. Currently banks take credit data from CIBIL and also use their own analytical insights run on their customer database to decide on any credit or loan application.

However with the launch of CreditVision tool from TransUnion-CIBIL; banks will now have more detailed information about an individual or any company’s financial transaction history.

The USP of the tool is to identify potential defaulters and potential new customers for loans and credit cards.

Read more about how to improve credit score.

This is how CreditVision tool from TU CIBIL will benefit lenders:

  • Consumer’s granular level of financial transaction history will be available of the apart from the currently used credit score.
  • Predict who is going to default in the near time.
  • Predict which defaulter is currently paying which lender and how much, who is prepaying and at the same time not paying.
  • Report on who is experiencing fall in their financials and whose account balance is improving.
  • Categorize individuals as credit revolvers, transactors, and outstanding builders.
  • Lend more: Identify borrowers, who can be given higher loan amount than the sanctioned amount.

How it will benefit borrowers or consumers:

Individuals with no credit score are many a times denied credit or loan. Because banks did not have any credit data to evaluate credit worthiness. However with Credit Vision, deserving non-customers will be offered automated loans without compromising the risk.

Features of CreditVision Tool:

  • Developed by TransUnion
  • It is an algorithmic software which studies customer pattern in payment, exposure and spend behaviour.
  • The software analyses last 3 years data.

So basically there will be improvement in making lending decisions, credit penetration will increase and access to credit will be improved.

Brief About TransUnion CIBIL:

  • TransUnion CIBIL is the India’s most renowned credit information company. They maintain credit history/records of over 500 million consumers and business entities.
  • India’s leading public and private sector banks, NBFCs, financial institutions and HFCs are members of TU CIBIL.
  • TU CIBIL collects, analyzes and delivers information about the credit history of the borrowers (individuals, small, medium and big enterprises). And provide this information to its members. This information is then used by the members to make credit decisions about individuals and businesses.
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7 Reasons to Take Personal Loan for Car

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Car loans are now offered for any type of the car – new or used one. And the approvals are quick. Although individuals opt for new car compared to second hand car, the demand for used car is still significant. Although car loan for used car is offered by many lenders, there are many conditions applied. In such cases, personal loan is recommended. And here are the reasons when personal loan for used car is recommended:

Buying second hand car is easy:

Not every bank offers car loan for used car. And even if they do, certain terms and conditions are applied. The most important being:

1) Age of the car – Lenders offer finance to only for the cars which are less than 5 years old.
2) Make and model – If you are planning to buy second hand car whose make/model is no longer manufactured or has poor demand, then loan application will get rejected.

In case of personal loan, no such conditions are applied. And while taking the loan, there is no need to provide the purpose. This is mandatory in case of car loan.

No need of hypothecation i.e. getting car title changed after payoff:

When you take car loan for new car from any lender, the holder of the car title is the lender himself. And until you pay-off the entire amount, it remains on their name. However, even if you repay the entire loan amount; the lender continues to remain the owner. You can legally become owner, only after changing the hypothecation in the RC book after personally visiting regional transport office (RTO) office.

Sell car anytime:

Whether vehicle loan is taken for new or old car; selling is allowed, only when the loan amount is fully paid and name in RTO is changed. However in case of personal loan, there is no such restriction, as you are the owner of the car. And you can sell car it anytime – be it new or old.

You can buy used car, no matter what the age is:

Most financial institutions offering car loan will reject the application, when age of the car is old or when the vehicle is already sold multiple times before. However in case of personal loan, there is no such restriction. This is because there is no need to provide purpose of the loan.

You want to modify the car:

Money received through personal loan can be used for – car modification, repair works etc. This is not possible in case of car loan.

Read more on car loan for cibil defaulters.

Avoid name change in insurance policy document:

Similar to name change in RC book; you will have to change name in the insurance policy document, by providing NOC copy received by the bank to the insurance company and RC book copy received from RTO.

Avoid location change:

Suppose you have taken car loan in Maharashtra. After paying-off all the installments, you shift to Andhra Pradesh, then you will have to remove hypothecation in the state of Maharashtra only. You cannot do the same in Andhra Pradesh. In case of personal loan, there is no such requirement.

Read about car loan or personal loan for car, what to choose?

However before taking personal loan for second hand car, two important points should be taken into consideration:

  1. Personal loan is costly: Interest rate on personal loan is 4%-5% higher compared to car loan. This is because, it is unsecured type of loan.
  2. If you are planning to buy second hand car thorough personal loan, then check whether total cost is less after adding the interest income.
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Car Loan or Personal Loan for Car: 11 Points to Consider

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There are two funding options available when you want financing for purchase a car – personal loan or car loan. Basically both are personal loan only.

But there are two fundamental differences between the two in technical terms as follows:

  • Car loan can be used only for purchasing car (new or second hand). Whereas personal loan can be used for any purpose and there is no restriction on spend. E.g. modifying the car, add new accessories, etc.
  • In case of auto loan, vehicle is in the custody of the lender. And till the time, repayment is fully done, it remains in their custody. But in case of personal loan, the car will remain in the borrower’s name. This is because, this type of loan is an unsecured loan. i.e. lender do not ask for any collateral.

Due to the above two fundamental differences, what should be preferred when buying a car – personal or vehicle loan? The answer to this question depends on the benefits and cons of each.

Let’s understand this in detail below:

1. Loan amount: In case of car loan, the amount of finance offered is equal to the cost of the car. However in case of personal loan, you can even get higher sum depending on the evaluation done by the bank. And this money can be used for buying any car. In fact, if you are eligible to get higher sum; you can even purchase multiple vehicles.

2. Money saving on the interest: The most important factor to be considered when taking any type of credit, is the interest rate. If this is low, then you will save good amount of money. Personal loan rates are in the range of 11%-24% and 8%-11% in case of car loan. With such a high difference between the interest rates; auto loan is a clearly a big money saving option. And if you are an honest borrower; taking a car loan should not be a problem even if car is under the control of the lender for some period. One way to save money on interest rate, in case of personal loan is to get it against securities such as fixed deposit, LIC policy, mutual funds and others.

Check out when to prefer personal loan for used car.

3. Poor credit score: If your score is poor due to past financial mistakes, then getting a personal loan will be difficult. Although there are other ways to get personal loan when score is poor. But you are more likely to get car loan, since your vehicle will be kept as collateral with the bank.

4. No credit score: There are many individuals, who have not taken any form of credit before. And even if they are earning good income, their credit score is not available at CIBIL. For such individuals, with no CIBIL score at all; taking a loan and regular repayment becomes an opportunity to start building credit score.

5. Building credit: If you get car loan when the credit score is bad; then it becomes an opportunity to rebuild the credit rating.

6. Down payment: No down payment is required in case of personal loan; whereas for car, down payment is must.

7. Used car: Personal loan can be used for purchasing second hand four wheeler. But very few lenders offer car loan for second hand car. Even if they do, the loan amount is calculated mainly on the basis of age of the car and depreciation value. So the finance offered is less than the actual value of the car. If the car is too old, then lender may not even offer auto loan. In this case, personal loan is the best solution. However careful evaluation will be required to calculate the actual amount you will end up paying on the interest. It should not be higher than the total cost of the second hand car.

8. Modifying and repairing the car: If vehicle modification is your objective after buying, then personal loan is the only option. You can use this money to modify the car as per your choice. Car loan cannot be used for repair. And car belongs to the bank, until you pay-off all the EMI. But in case of personal loan, car remains on your name.

9. Changes in RC book i.e. hypothecation removal: When auto loan is taken, the car is in the name of the lender. Even after the loan amount is fully repaid, it remains in the name of the lender until you get NOC from the bank. You have to then visit RTO and get the name financiers name replaced with yours. There is a small fee involved for removal of hypothecation. This is a very complicated process. No reasons required, when the name RTO comes up:)

Read more on car loan for low income earner.

10. Name change in insurance policy: You will have to also visit insurance company and show NOC from the bank and then get name changed in the policy document. This reads very simple but is a very painful and time consuming process. Moreover between complete loan repayment and changing name in the policy document, if any damage happens to the car, then claim process becomes very complicated.

11. Selling car during loan term: If you wish to sell the car during the tenure of the car loan, you cannot do it easily. This is because, the car is in the name of the financial institution who lent the money. You will have to first pay-off the entire loan amount, then only vehicle can be sold. This is not the case with personal loan. You can sell it anytime.

So prefer car loan when:

  1. You want to save money on interest
  2. No modification is required
  3. Personal loan is rejected
  4. Improve poor credit score
  5. Start building credit score when there is no score at all

Prefer personal loan for vehicle financing when:

  1. Higher loan amount is required
  2. You want to keep car in self-custody
  3. Modify the car
  4. Buy car accessories
  5. You do not have money to make a down payment
  6. You want to buy used car
  7. You want to avoid painful process of changing name in RC book and insurance document.
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Personal Loan: 18 FAQs – Process, Interest Rates, Charges, Closure

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Personal loan is the most attractive option to meet financial emergency or need. And there are many lenders providing the same in India, as the profit earned is high for them. Although it sounds simple to get a loan, however there are many commonly asked queries by readers of this blog. Listed below are the FAQs and simplified answers to each.

1. Is personal loan easy to get in India?

There is no definite answer to this. If CIBIL score is good and income meets eligibility criteria of the lender, then chances of approval are high. But on the other hand, if the score is poor, you can still get loan, provided you meet other criteria. You can also get loan against securities, as mentioned in this article below.

2. Can I take personal loan for any purpose?

Personal loan has now become too personal. Individuals are using the money for almost every purpose such as buying gadgets, electronic appliances, wedding expenses, credit card bill payment, short term financial crunch, home renovation, business expansion, etc. While taking personal loan, you do not have to specify the reasons, so it’s your money and can be used for anything.

3. What is the process of getting the loan?

It is very standard in almost every bank. It is a five step process as follows:

  1. Apply for loan
  2. Submit complete verification documents
  3. Application review and other formalities by the banks. It may also include visit to your address by the bank’s investigative agency.
  4. Loan application status – approved or rejection is communicated by the bank
  5. Loan amount disbursal

4. Who offers personal loan in India?

There are seven broad categories of entities who offer financing:

  1. Public sector banks such as SBI, IDBI and others
  2. Private banks such as ICICI, Axis, HDFC and others
  3. Foreign banks such as HSBC, Bank of America, Citi Bank, American Express
  4. Co-operative banks
  5. Finance companies such as Bajaj Finance, Aditya Birla Finance, Tata Capital and others
  6. Peer to peer lending companies
  7. Private money lenders

5. How is the loan amount disbursed?

There are three options which varies for each bank – cheque, demand draft and direct bank transfer.

6. Why interest rates are high in case of personal loan?

This is because of the risk involved. Personal loan is an unsecured loan, i.e. banks do not ask for any collateral before lending money. So the risk factor is very high for the banks due to possibility of default or non-payment of dues, affecting their profits. So to lower the risk, higher interest is charged.

7. Why income is considered to be a deciding factor by the banks?

Income is the only proof based on which lenders evaluate the repayment capacity of the applicant and also calculate the loan amount. But this does not mean, low income earner cannot get loan. Check out personal loan for low income earners.

8. Can this loan be taken against any security?

Yes, you can take personal loan against securities such as property, car, gold, LIC policy, fixed deposit, shares, mutual fund and bike. This is helpful, even if CIBIL score is bad.

9. If loan is rejected, can I apply again with the same or other financial institution?

You should first understand the reason for rejection and then take further action. E.g. if the loan got rejected due to poor CIBIL rating, then your first objective should be to improve the score. Even if you apply for loan at some different lender, chances of rejection will remain as it is. Other alternate solution is to get loan from peer to peer marketplaces or co-operative banks.

10. When to prefer taking loan from co-operative bank?

Interest rate by co-operative bank is low compared to commercial banks. However there is a limit to the loan amount and you need to be a member of the bank, to avail loan. So if the fund required is less and you are a low income earner, then prefer co-operative bank. Read more about this.

11. Are there pre-closure and processing charges?

Yes, many banks charge these two fees.

12. What factors banks take into consideration while deciding on the loan amount?

The main eligibility criteria are – CIBIL score, income, age, profession (salaried or self earning), company you work for, qualification, work experience.

13. What are the two types of interest rates applied on personal loan and their pros and cons?

Fixed and floating/variable are the two types of interest rates applied by the bank. And each having its own advantages and disadvantages as mentioned below.

Pros and cons:

There is no change of interest in case of fixed. And till the time loan is fully repaid, the interest remain as it is. So budget planning becomes very easy. Opposite is the case with variable interest; the rates can change anytime and is dependent on market condition. So EMI can change multiple times and may go above or below the fixed interest.

14. Before applying for a loan, is there any planning required?

Yes, planning is must in any money related matter. You should consider following points before opting for personal loan:

  1. Evaluate your loan amount requirement
  2. Check your CIBIL score
  3. Compare product features offered by multiple lenders. Especially compare interest rate, prepayment and processing fees.
  4. Select the option which best suits your requirement.
  5. Ask lender about the post loan closure formalities and process.

15. If loan is rejected, does it affect CIBIL score?

Yes. And banks communicate the status to CIBIL. This is the reason you should do planning, as mentioned above. Get to know about personal loan for low CIBIL score.

16. Which is better – loan with low or high interest?

It depends on how much money you will end up saving on the EMI. Usually high interest is applied when tenure is short and vice-versa.

17. Once loan account is closed, what formalities should be done?

The most important thing to do when repayment is fully done, is to get loan closure letter from the bank. This is the only proof which states that you do not owe anything to the bank. Many people think that once the dues are fully paid, the obligation of the borrower ends. But legally, no due certificate or closure letter is the only document helpful in any future dispute with the bank or any incorrect information is present in the CIBIL record or when new loan is applied in the future. Once everything is successfully done, check your CIBIL score to confirm whether loan is marked is closed by the lender or not and that there is no due amount in the record.

18. How to pay EMI i.e. which payment mode?

There are multiple options available mainly – cash deposit in bank or ATM, cheque, demand draft, direct debit, online transfer, app.

If you have any more questions related to personal loan, then please mention in the comment section below. It will be answered as early as possible.

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