If you’re going through a cash-crunch, but are hesitant about signing up for an unsecured loan at this stage, then taking a loan against your car could be a slightly cheaper alternative. Some lenders offer a loan up to 150% of the original value of a car, while others cap the loan amount to 50% of your car loan value.
Based on the relationship with your bank or the repayment history of your car loan, you might even get a pre-approved loan offer against your car which could require minimal documentation, and instant and paperless loan disbursal. “If you’re a new customer, you’ll be required to furnish your KYC documents, your bank details and your salary slips or ITRs, etc. Do note the document requirements will be slightly different for salaried and self-employed loan applicants,” says Adhil Shetty, CEO, BankBazaar.com.
A leading private sector bank is offering such loans in the range of 13.75-17% per annum, while another major government bank is offering loans starting at an effective ROI of 14.8% to 16.8% p.a. Now, these rates could be slightly cheaper than a personal loan, and loan tenures could be anywhere between 12 months and 84 months, depending on your lender’s policies.
However, be mindful of other charges like non-refundable processing fees, foreclosure charges, part-payment charges, stamp duty charges, RTO transfer charges, overdue EMI interest, EMI bounce charges, so on and so forth.
“You’ll be well-advised to first check with your lender whether you’re eligible for any pre-approved loan offers or not. Regardless, get complete clarity on the loan application process and all the associated charges before finalising your decision. You can also compare your options across different lenders for the best repayment terms. If you’re looking for a colleteralised loan, you may also explore other options like a gold loan, a loan against your mutual fund investments or shares or a loan against your endowment plan among others,” informs Shetty.
Lastly, ensure all your EMIs put together constitute less than 40% of your monthly household income and repay all your EMIs in full on time. Failing to do so could deteriorate your financial health.