Want to raise cash? Your car can be put to good use. And, since it is loan against collateral, rates are good as well. While banks do not advertise it aggressively, HDFC Bank and Kotak Mahindra offer this loan, even if you have a car loan. That is, it is a top-up loan.
Interest rates charged on this loan start from 13.5 per cent for HDFC Bank and 14-14.5 per cent for Kotak Mahindra Prime. Interest rates can go as high as 17-18 per cent in case the car against which the loan given is old and is valued less.
Ashok Khanna, senior executive, vice-president & business head, vehicle loans, HDFC Bank, says, there is a mixed set of customer profiles that opt for this loans. "Some are already having used car loans, while some are aspiring to upgrade from their current segment of vehicle. The conditions while applying for this loan are very similar to new car loans, however, here customers have slightly lower income requirements," he says. The rates are better than personal loans - 18 to 22 per cent. In case of a top-up loan against cars, the disbursement is faster too, however documentation requirements are same like any other loan. For instance, HDFC and Kotak Prime disburse this top-up loan in two-three working days, whereas a personal loan takes five to seven days to be disbursed.
While Kotak Prime offers higher top-up amounts if the number of equated monthly instalments paid is high, HDFC Bank deducts the amount due on existing car loan customers and then disburses the new loan.
On an average, the bank will give you a loan that is 70 to 80 per cent of the current market value of the car. "The car need not be brand new. We also give loans against second-hand cars," adds Khanna.
"Maximum depreciation of the car happens in the first year itself," adds Sumit Bali, executive vice-president, Kotak Mahindra Bank. Hence, if you take loan against a car more than a year old, your car will be valued less and you will end up getting a lesser loan against the vehicle.
Nikunj Sanghi, president of the Federation of Automobile Dealers Association, says, "Valuation of the car depends on its age, model, usage and its popularity. If the car against which you are taking a loan is popular, the car finance company may agree to give you a better loan value because popular cars have better resale value in case the borrower defaults on repayment." This loan is given for a maximum period of 60 months depending on the age of the vehicle. For instance, HDFC bank doesn't give a loan against a car whose age is not more than six years for private ones and seven years in the case of commercial cars. Since banks treat the credit facility against a car like any other securitised loan, one needs to hypothecate the asset. The lien is marked on the customer's certificate of registration which acts as an important proof of ownership as this will restrict the person from selling his car until the hypothecation is removed. Hence, once the loan has been repaid, get a no-objection certificate from the bank. When you want to sell the car, this NoC has to given to the RTO.