Car loan in India: Do’s & don’ts, features, benefits and EMI calculator

It can very well happen that you have purchased your car and availed a car loan for the same. But you have recently come across a loan package that it better than the current one, and you are desirous of having that loan portfolio instead. If this sounds familiar, you are in the right place. The good news is that you haven’t missed your chance.

Car loan balance transfer can be defined as the process of transferring your loan from the existing lender to another bank, which offers more flexibility and competitive rates. In the event, you pay a higher rate of interest on the loan than the market rates. You can also pay a higher rate of interest if you want flexibility regarding your loan tenure or in case you wish to avail better terms and conditions. A car loan transfer allows you to review your present debt obligations as per your budget.

Car loan transfer process

The ideal way to go about the car loan transfer process is to keep looking for the right package. The car loan transfer process involves getting an idea from all the lenders about the best car loan that they can offer.  It is essential that you find out the rate of interest offered by the lender on the balance transfer as well as any fees associated with it.

Once you know which lender you want to go ahead with for the car loan transfer, you should speak to your existing lender on transferring the balance amount to the account of another lender. At this stage, you should also check with the existing lender if any foreclosure or prepayment penalty will have to be paid due to the car loan transfer. You should also start arranging the documents/paperwork required for the transfer.

A lot of NBFCs and banks also allow you to transfer the balance of your existing car loan and also get a top-up loan to meet your working capital needs. So make sure to do your diligence properly so that you get the best deal available up for grabs. Before you commence on the task of effectuating the transfer, also be mindful of the savings that you be made by transferring the loan from one bank to the other. There are several online Car Loan EMI Calculators which are available to do this work for you.

It is important to remember that each bank has a different procedure followed for car loan transfer. So please check with the bank. Typically, the following procedure will be followed:

– The new lender you have chosen to transfer your loan to will credit the remaining loan amount to your account, which will enable you to clear your previous loan completely.

– The new lender will issue a demand draft favouring your previous bank or lender.

– The new bank will coordinate with your previous bank for clearing your loan with the previous bank.

Car loan transfers and benefits

The key advantage of a car loan transfer is the gains you make due to a lower rate of interest offered by the new bank. It is also your saviour in case you have not read the fine print of the loan agreement before signing on the dotted line. Once you feel that the terms and conditions are too onerous, you have the option of transferring the car loan.

Car loan transfers can be also helpful in allowing you to take stock of the outstanding debt and undertake financial planning accordingly. If you are looking to clear large EMIs, a car loan transfer can be a boon. Once you have assessed the pros and cons of a car loan transfer, you will find it easier to decide if the option of transfer is economically viable for you.

In other words, car loan transfers are an easy way to overhaul your financial portfolio as it offers several benefits.

Car loan transfer – eligibility

There seem to be no minimum eligibility criteria to undertake a car loan transfer. However, as per the market practice, a new lender will take into account the following factors while deciding on your loan refinancing application:

– You have not defaulted on payments on the present loan: No one wants to extend a loan to someone who has been defaulting on payments. So if you are currently behind your EMI payments with your existing lender, the chances are that you will not be in a position to find a refinancer.

– The car should be worth something: Lenders will usually inspect the condition of the car before they decide to extend the refinanced credit. The age and mileage offered by your car are factors that would be taken into account.

– Credit score:  Your credit score is an indicator of your financial health. Like any loan application, the success of an application for the refinancing of car loan would also depend on how good your credit score is. Lenders would typically expect to see an improved credit score compared to the score you had when the original loan was extended.

Documents required for car loan transfer

As a standard practice, the following documents required by the bank that you wish to transfer your current loan to:

– Two photographs

–  Proof of identity

– Proof of address

– KYC documents required by the bank you’re transferring the loan to

– If you are a salaried individual:

– Previous three month’s salary slips

– Previous three month’s bank statement (to which the salary is credited)

– PAN card

– If you are self-employed

– Balance sheet and Profit and Loss statements of the previous three years

– Current account statements of the business for the previous six months

– Savings account statements

– TAN card

It is imperative to check with banks if any other documentation is required for effecting the car loan transfer.

FAQs

Is it possible to transfer the car loan to a natural person?

Yes, this is permitted provided you cede the ownership of the vehicle. Please check the loan documentation carefully to ensure that the transfer is actually possible.

Do banks charge a fee for effecting a bank loan transfer?

It is not unusual for banks to levy certain fees or charges for processing a car loan transfer application. The quantum of fees depends on the balance repayment period of the loan and the amount of loan left to be repaid. It would be prudent to discuss these charges with your bank in advance.

Does a car loan transfer attract taxes?

From July 1st 2017 GST of 18 percent is applicable on all banking services and products.

What is the ideal period to effectuate a car loan transfer?

The most viable option would be to opt for transferring the loan after one year from purchase. This will help in saving on a substantial amount of interest. If you intend to undertake the transfer after a period of 2 years, it may not provide to be beneficial to you given the fees to be paid for the balance transfer. The reason behind this is that the bank schedules a large chunk of the interest repayment during the initial stages of the loan. The principal becomes a more significant component towards the end. So if you can find a better interest rate than the current one, it would be advisable to undertake car loan transfer at the earliest.

What is the best way to find a bank for undertaking car loan transfer?

You will strike the best deal only when you research about all the possible options in the market. The best way to find a bank is by researching and obtaining all the information possible including the rate of interest, penalty fee and processing fees etc. This will definitely help you decide on the bank with ease

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