A Loan Against a Car, also known as a Car Loan or Auto Loan, is a kind of secured Loan. It lets you borrow money using your car as collateral. This financial product provides a convenient way for car owners like you to access funds by leveraging the value of your vehicle. You can use the borrowed amount to meet immediate financial needs, consolidate debt, or pursue other financial goals. Here is a quick explanation of how a Loan against Car works:

Secured nature

A Loan against Car is a Secured Loan, meaning you pledge your vehicle as collateral to secure the Loan. Lenders mitigate their risk by using your car as security, as they have recourse to repossess or even sell the vehicle if you default on the Loan. This collateral reduces the lender's risk, often resulting in more favourable terms. Examples include lower interest rates and higher Loan amounts.

Loan amount

The Loan amount you can access through a Loan against Car is usually determined by the appraised value of the vehicle. Lenders may offer a percentage of the car's current market value as the Loan amount, with some institutions providing up to 70-80% of the vehicle's appraised worth. The actual Loan amount usually varies based on factors such as the borrower's creditworthiness, the condition of the car, and the lender's policies.

Interest rates

Like other Auto Loans, the interest rates for a Loan against Car are often lower compared to unsecured Loans. This is because the collateral reduces the lender's risk. Interest rates can be variable or fixed. They may vary depending on factors such as:

• The borrower's credit score
• Loan term
• Prevailing market conditions

If you have a higher credit score, you can qualify for lower interest rates, resulting in lower borrowing costs.

Loan term

The Loan term is nothing but the period over which you agree to repay the loan. Loan against car terms can vary depending on the lender and your preferences, but they usually range from one to five years. Shorter Loan terms usually result in higher monthly payments but lower interest costs. On the other hand, longer Loan terms often lead to lower monthly payments but higher interest.

Repayment schedule

Borrowers are required to repay the Loan against car in regular instalments over the agreed-upon loan term. These payments usually includes principal and interest and are calculated based on the Loan amount, interest rate, and tenure. You must adhere to the repayment schedule to avoid defaulting on the Loan and risking the repossession of your vehicle.

Conclusion

A Loan against Car provides car owners with a valuable financial tool to unlock the equity in their vehicles and access funds for various purposes. However, you should carefully consider your financial circumstances and weigh the risks and benefits. This way, you ensure to afford the Loan payments before proceeding with this financing.