Q: Hi Adhil. I’m contemplating taking a loan against my car. Is it a good idea? What are the key things I must consider? – Raman
Ans: Hi there. If you’re going through a cash-crunch but hesitant about signing up for an unsecured loan at this stage, 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.
A leading private sector bank is currently offering such loans in the range of 13.75-17% p.a. 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 to 84 months depending on your lender’s policies. That said, 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. 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 do so could deteriorate your financial health.
Have a question on personal finance? Ping me on Twitter at @adhilshetty with the hashtag #AskAdhil. The writer is CEO, BankBazaar.com, an online marketplace for loans and credit cards.