Features and Benefits of Car Loan
10 Feb 2023
Table of Content
Key Features of Car Loan
Benefits of Car Loan (Refer to the competitor pointers for car loan benefits)
Car Loan Tax Benefit
Advantage of Taking Car Loan at BOB
The greatest advantage of a car loan is the ease with which you can possess a car with a bit of planning. A loan allows you to improve your lifestyle if you create an advanced strategy to tackle expenses while meeting other investments that you are already committed to. Owning a car not just improves your social status, but also acts as a huge advantage offering freedom to travel where and when you want at your ease. Apart from these advantages, a loan comes with many other features and benefits. We will help you understand all the features and benefits of a car loan.
Key Features of Car Loan
Before choosing to take a car loan, you should have an idea of its most significant features. These pointers will help you know what you can expect to get with the car loan.
- A car loan helps you to finance the purchasing of a new or pre-owned car
- Financers usually lend up to 90%-75% for new and old cars respectively, the two types of car loans. (for some models upto 100% too)
- The car loan tenure ranges from 1-7 years.
- Most lenders are willing to finance instantly the most eligible candidate
- If the bank is in tie up with a particular dealer or manufacturer, they are likely to offer a discount to the borrower on the purchase of a car from that manufacturer
- The bank holds the car as collateral until the individual repays the loan
- The repayment is structured in equated monthly instalments or EMIs
- You can choose a suitable payment mode to repay the car loan. It could be through post-dated cheques or use an auto debit facility, through which the EMI will be directly deducted by the bank. Ensure sufficient funds are in your account to avoid default.
- Car loans come at fixed interest rates where you continue to pay the same fixed amount till the maturity duration of the loan payment. The interest rate is also based on the CIBIL score of an individual, if the credit score is 701 or above, the bank is likely to offer a lower interest rate. Thus CIBIL score for a car loan makes a significant impact on the loan interest rates and approval.
- Car loan approval requires easy documentation checked by the lender and if they meet the lender’s expectations, the loan is sanctioned.
- Car owners can add accessories to their vehicles and this amount is included in the loan.
- Borrowers can prepay the loan amount if they have the funds to prepay. The terms of pre-payment vary from lender to lender. Some car loan prepayments are charged by lenders while some do not charge anything if the first EMI is paid.
- You can combine your spouse's income to increase car loan eligibility or get a higher loan.
Benefits of Car Loan
Loans are an asset for those who know how to handle them with proper calculations. So even if you plan on a loan, you must decide your repayment capacity. You might dream of purchasing a highly expensive brand-new SUV, but your income cannot balance the repayment, and the burden of repayment will take away the pleasure of enjoying your buy.
Therefore, use the Car Loan EMI Calculator from the borrower’s website and check your loan tolerance before taking the plunge. After all, loans are purposed to make your life smooth and peaceful not ruffle them with unnecessary pressure. They come with a list of benefits, so go through them to make the most deserving choice.
Car Loan Tax Benefit
- With a car loan, you can easily purchase a four-wheeler
- Your loan offers an option of repayment that can be stretched to 7 years. You can choose the car loan tenure that best fits you.
- If you cannot purchase a new car, you can apply for a loan for pre-used cars
- No extra collateral is required for availing of the loan, as the vehicle itself acts as collateral.
- Making timely repayments builds your credit history enhancing your credit score for future loan eligibility at a low-interest rate.
- Loan repayment helps you form a better idea of your spending capacity. Once the repayment on the car loan is over, you can start planning something different.
- Some car loans offer additional perks like free servicing, free road tax etc.
- You can get car loan tax benefits; we will explain who is eligible to tax benefits on car loans.
Tax Benefit on Car Loan for Salaried Employees
When a salaried individual purchases a car it is mostly for personal use and therefore falls under luxury goods. So, while you get tax benefits on educational loans or home loans , these are utility products, but luxury products like a car cannot avail of a tax deduction. Therefore, no tax benefit on a car loan for salaried employees can be claimed by this section.
Tax Benefit on Car Loan for Self-Employees
Business owners or self-employed individuals can avail of car loan income tax benefits for cars they purchase on loan. Cars for personal use fall under, the luxury category as explained earlier, however, if the car is being used solely for business purpose and a record is being maintained for business activity, the owner can claim tax benefits.
So how can a self-employed individual avail of tax benefits on car loans?
The self-employed person will need to show that the car is being used for legitimate business purposes and not for personal use.
How can business owners claim income tax benefits through a car loan tax deduction?
Business owners can claim a tax benefit only on the interest and not the principal.
If your loan amount is Rs 20 lakhs and the interest rate is 12% for a year. The taxable income from your business is Rs. 40 lakhs. The car loan interest for the year is 2.2Lakhs (12% of 20 lakhs). This amount will be deducted from the annual income at the point of tax payment. For that year, the tax payment will be Rs 3.78 lakhs.
So, ensure to include this expense when writing about business expenses while filing an income tax return. The banks will issue an interest certificate on request showing the amount paid on interest on the car loan. This certificate can be attached while filing the IT return will get a tax benefit.
The other way that business owners using their car for business purposes can claim car loan tax deduction is by showing that their car is a depreciating asset. Which means that the price is experiencing a gradual reduction. This is one exemption you can file even without taking a car loan.
Who can get the Tax Benefits on Car Loans?
Thus, if the borrower is a salaried individual, the tax redemption facility does not apply to these individuals. Self-employed business owners, who can show that the car is used solely for business and not personal use apply for an income tax deduction on the car loan interest.
How to Claim Car Loan Tax Benefits?
Before you claim a car loan tax exemption, certain points must be remembered:
- Your tax claim can be rejected if the income tax officer concludes that the car has not been used for business purpose.
- While buying the car ensure that the car is bought under the registered business name failing which, the business owner will not be able to claim the tax reduction.
- In some situations, business owners also use the car for personal requirements. Can they still avail of tax redemption on the car?
- The answer is yes, the interest payment and depreciation will be divided by the ratio at which the car is used for business and personal. If the car is used 70% for business and 30% for personal, the owner can claim 70% car loan tax exemption and depreciation for business use saving a part of the tax.
- Request your lender to issue an interest certificate indicating the amount paid as interest on the car loan. This will need to be submitted while filing an income tax return
Advantages of Taking a Car Loan at BOB
When you are searching for a lender for car loans, then choosing the one with a competitive interest rate and reliability is the right choice to make. Choosing the Bank of Baroda will open a wide range of advantages for the borrower. Get up to 90%-75% financing on both new and pre-owned car loans (for some models upto 100% finance). You can apply for a maximum of Rs. 5 crore loan amounts making it possible for you to own one of the most expensive cars in the market. The bank calculates the interest rate on credit score and daily reducing balance. You can easily repay the loan in 84 months. The loan can be taken by anyone be they salaried, self-employed, businessmen or NRIs. The bank will hypothecate the financed car. Loans through the Bank of Baroda take the minimum processing time with just the very necessary documents. The bank attaches no foreclosure charges, and the down payment need not be a high amount.
Calculate the EMI from the Bank of Baroda website, check out the bank's loan features and advantages and apply for the loan online or visit the nearest branch. Check the eligibility criteria and ensure you have all the car loan documents . Enjoy a refreshed experience of banking with the Bank of Baroda and find your car loan sanctioned in no time.
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