Winning Bizness Desk

Mumbai. If you're planning to buy a car and need a loan, it's important to compare interest rates offered by banks. Currently, Union Bank of India is offering car loans starting at an interest rate of 7.90% per annum, which is one of the lowest in the market. In comparison, the State Bank of India (SBI) is offering car loans at 9.10% per annum.

Loan duration significantly affects interest cost

Choosing the right loan tenure is crucial. Car loans are typically available for a period of up to 8 years. However, opting for a longer tenure—such as 7 to 8 years—often results in a higher interest rate. Loans with shorter durations of 3 to 4 years generally come with rates that are up to 0.50% lower. Therefore, it is advisable to opt for a shorter tenure whenever possible to save on interest.

Interest rate depends on credit score and income

Apart from tenure, a borrower's credit score plays a significant role in determining the applicable interest rate. A higher credit score increases your chances of securing a car loan at a lower rate. Banks are also more likely to offer competitive rates to applicants with a stable and regular income source. Hence, maintaining a good credit profile and demonstrating financial stability can work in your favor.

Check for pre-closure penalty before signing up

Before finalizing a car loan, it’s essential to understand if the bank charges a pre-closure penalty. Pre-closure refers to repaying the entire loan amount before the agreed tenure ends. Some banks charge a penalty for this, while others may waive it. The penalty structure varies from bank to bank, so choose a lender that either doesn’t charge this fee or has a minimal penalty.

Understand the processing fee component

Almost every bank levies a processing fee when you apply for a car loan. While some banks offer loans at lower interest rates, they might compensate by charging a higher processing fee. It is therefore important to check the exact processing charges before applying. Ignoring this fee may result in higher overall loan costs, even if the interest rate seems attractive.

Look out for seasonal offers and schemes

Banks frequently launch special offers during festive seasons or specific times of the year. These schemes may include benefits like reduced or waived processing fees, no pre-closure penalties, 100% on-road price funding, zero or low interest rates, and even gift vouchers. Borrowers with good credit profiles are likely to get the best deals under such schemes, making it worthwhile to wait for these windows if possible.

Make informed decisions to minimise loan burden

While securing a car loan might seem straightforward, borrowers should not overlook fine print and additional charges. By carefully considering factors such as interest rate, loan tenure, credit score, processing charges, and seasonal offers, you can significantly reduce the financial burden and make your loan experience smoother and more economical.

Summary Pointers:

• Union Bank offers car loans starting at 7.90%, lower than SBI’s 9.10% rate.
• Shorter loan tenures attract lower interest rates; avoid 7–8 year loans if possible.
• Credit score and regular income impact your chances of getting lower interest rates.
• Always check pre-closure penalty policies of the bank before signing the loan agreement.
• Processing fees can vary; some banks charge high fees despite low interest rates.
• Look for special festive offers with reduced fees, zero interest, or extra benefits.
• An informed loan decision helps reduce overall costs and loan repayment pressure.