Please Tell Us Your City

location icon
    location iconClose
      Sorry!! No Matching Results found. Try Again.
      Close

      How Does Car Loan Work?

      CarTrade Editorial Team

      CarTrade Editorial Team

      Buying a new car is a time filled with much excitement and a fair bit of stress as well. From narrowing down on the car of choice to arranging the finance for it, there’s a lot of things that need to be sorted out. The world will come and congratulate you on your purchase, but only you’ll know the efforts that have gone behind it all. Topping things up is that few owners understand the logic behind a car loan working out for them. To them, they gave the documents, signed away the ownership of the car for the duration of the loan, agreed upon the interest & eventually drove the car out of the showroom and into their drive way.

      How does car loan work
      How does car loan work

      There’s more to the car loan process however, than what’s described in the lines above. First and foremost, a car loan is a secured loan. This means, like the loan taken to buy a house, the car loan involves signing away the ownership rights to the lender till the time that the loan is being serviced. Commonly known as hypothecation, it involves the lender holding the right to reacquire the car in question, should the borrower go back on his/her legal contract to pay up the EMI’s at pre-prescribed times.

      Typically speaking, there are the nationalized banks, private banks and cooperative banks that typically disburse loans for new cars. Then there are private lenders, workplaces that fund the auto-dreams of their employees and so on. Each lender has their own set of rules, the manner in which they calculate the rate of interest and the amount the borrower has to repay each month.

      These days, car manufacturers themselves have begun offering financing options to aspiring owners and the car loan process through them is at times, relatively simpler. But whatever the choice of lender, it ultimately boils down to getting the best deal for the car buyer. Things that they typically tend to focus on is the interest rate, the loan tenure, the EMI they’re shelling out, the administrative fees, insurance costs and any other levies & charges in the case of changes (positive as well as negative) to the repayment schedule.

      Needless to say, understanding the nuances of car loan working takes a fair bit of time, and hence, it is advised that one must never deal in haste. Doing so not only risks a higher monetary hit, but it also increases the chances of much procedural hardship later on. So choose wisely!