8 Things to Check Before Taking a Car Loan
📖 6 min read
Before you sign the car loan agreement, here are the 8 critical things every Indian car buyer should verify to avoid nasty surprises.
1. Effective Interest Rate (EIR)
Banks sometimes advertise a flat interest rate but actually apply a reducing balance rate. Always ask for the annual percentage rate (APR) or effective interest rate to compare apples-to-apples.
2. Processing Fee
Most banks charge 0.5%–1% of the loan amount as a processing fee. On a ₹10 lakh loan, that's ₹5,000–10,000. Factor this into your total cost.
3. Prepayment Charges
Check if the lender charges a penalty for early repayment. RBI guidelines restrict prepayment charges on floating rate loans, but some banks still apply them on fixed rate car loans.
4. Loan-to-Value (LTV) Ratio
Understand the exact percentage the bank will finance vs what you must bring as down payment. On-road price includes registration, insurance — not just ex-showroom.
5. Foreclosure Terms
Understand the process and timeline for fully closing the loan early. Make sure the NOC (No Objection Certificate) process is clearly defined.
6. Insurance Bundling
Many dealers and banks push you to buy insurance through them at a higher premium. You have the right to buy insurance independently — often saving 15–25%.
7. Total Cost of Loan
Ask for the total repayment amount (principal + all interest + all fees) upfront. Use CarHaven's EMI calculator to verify this independently.
8. CIBIL Impact
Every loan application creates a hard inquiry on your credit report. Multiple applications within a short period can reduce your credit score. Apply to max 2–3 banks strategically.