Why Choose a Personal Loan to Buy a Car in India?

Buying a car in India is a big milestone. Whether it’s your first hatchback, a family sedan, or a premium SUV, the excitement is real. But so is the question: How should you finance your new ride? While a traditional car loan is the default choice for many, increasingly Indians are now choosing to buy a car using a personal loan. Why? Let's take it apart, compare the advantages and disadvantages, and assist you in determining whether a personal loan for car is for you.

Personal Loan to Buy a Car: The Basics

A personal loan for car purchase is an unsecured loan. That means you don’t have to pledge your new car (or any other asset) as collateral. The funds go straight into your account, and you’re free to use them as you like-whether for a new car, a pre-owned vehicle, or even for related expenses like insurance, accessories, or registration fees.

Car Loan vs. Personal Loan: What’s the Difference?

Let’s compare the two side by side:

Why Choose a Personal Loan for Car Purchase?

Here are the reasons why choosing a personal loan is a must:

1. No Collateral Needed

With a personal loan to buy a car, you don’t have to worry about your car being repossessed if you miss an EMI. The bank can’t take away your vehicle, making it a safer option for those who value peace of mind.

2. 100% Financing – No Down Payment

Most car loans cover only 80-90% of the car’s on-road price. You’re expected to pay the rest upfront. With a personal loan for car, you can get up to 100% of the car’s value as a loan amount. This is a big plus if you’re short on cash or want to keep your savings intact.

3. Use the Funds Your Way

A car loan is strictly for purchasing a car and only from authorised dealers. But a personal loan for car purchase is flexible. You can use it to:

• Buy from a private seller
• Pay for insurance, accessories, or registration
• Upgrade your car’s features
• Cover any other related expenses

4. Quick Approval and Disbursal

Personal loans are known for their fast processing. Many lenders offer instant approval and quick disbursal, sometimes within 24-48 hours. This is ideal if you spot a great deal and don’t want to wait.

5. No Hypothecation Hassles

With a car loan, the bank’s name is registered on your car’s RC book until the loan is repaid. This can complicate resale or transfer. With a personal loan, the car is in your name from day one, with no strings attached.

6. Ideal for Pre-Owned Cars

Not all banks offer car loans for used vehicles, and those that do may have strict conditions. A personal loan for buying a car works for both new and pre-owned cars, giving you more options.

When Does a Personal Loan Make Sense for Car Purchase?

• You want to buy from a private seller or outside a dealership network
• You need 100% financing and want to avoid a down payment
• You want to use part of the funds for insurance, repairs, or other expenses
• Your credit score is strong enough to get a competitive rate
• You plan to repay the loan in a shorter tenure (1-5 years)

When a Car Loan Might Be Better

• You want the lowest possible interest rate
• You are okay with a down payment
• You’re buying a new car from an authorised dealer
• You want a longer repayment period (up to 7-8 years)
• You have no problem with the bank holding a lien on your car until the loan is repaid

What is a Pre-Owned Car Loan?

A used car loan (or second-hand car loan) is a type of special loan for purchasing old cars. These loans typically have slightly higher interest rates than new car loans, and the loan-to-value ratio can be lower (up to 80% of the vehicle's value). Some banks and lenders also provide personal loans for old cars, which can be a quicker and easier option.

How to Calculate Car Loan EMI and Interest

Whatever loan you opt for, either car loan or personal loan, do make sure to know your EMI (Equated Monthly Installment) and overall interest outgo. Estimating EMIs on your own is a long-drawn affair. The good thing is you can now use an online car loan EMI calculator for quick, accurate results. You can adjust the loan amount, tenure, and interest rate to see how your EMI changes.

You can calculate your car loan interest using the simple interest formula:

Interest = Principal x Rate x Tenure.

Car loans or personal loan for cars generally use the compounding formula to levy interest, which you can calculate accurately with our EMI calculator.

You can also calculate it yourself using the following formula:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1].

Where:

• P: Principal amount.
• R: Monthly interest rate (annual interest rate / 12).
• N: Total number of monthly installments.

Best Bank for Car Loan: What to Look For

If you’re still considering a traditional car loan, compare these factors:

• Interest rate: Look for the lowest rate, but check if it’s fixed or floating
• Processing fee: Some banks waive this for special offers
• Loan-to-value ratio: How much of the car’s price will the bank finance?
• Prepayment charges: Can you repay early without penalties?
• Approval speed: How quickly can you get the funds?
• Customer service: Easy application and support matter

Popular choices for the best bank for car loans in India include HDFC Bank, SBI, ICICI Bank, and Axis Bank.

How to Apply for Car Loan or Personal Loan for Car

The process is simple:

1. Check eligibility: Age, income, credit score, and employment status

2. Compare offers: Use online tools to compare rates and features

3. Gather documents: ID proof, address proof, income proof, bank statements, and car details (if applicable)

4. Apply online or at a branch: Fill out the application, upload documents, and submit

5. Get approval and disbursal: Once approved, funds are credited to your account or paid directly to the dealer

You can refer to our detailed guide explaining how to apply for car loan here.

Personal Loan for Car: Pros and Cons at a Glance

Pros:

• No collateral or hypothecation
• 100% financing possible
• Flexible use of funds
• Quick approval and disbursal
• Works for new and used cars

Cons:

• Slightly higher interest rates than car loans
• Shorter repayment tenure (higher EMIs)
• Requires good credit score for best rates

Conclusion

Making the decision between taking a personal loan to purchase a car and a conventional car loan is based on your requirements, flexibility, and financial status. Personal loans give you unparalleled flexibility – no collateral, 100% financing, and rapid processing – and that makes them the intelligent option for most buyers, particularly if you wish to purchase from a private seller or need money for more than the car.

At My Mudra, we assist you in getting instant personal loans with rapid approval, low paperwork, and flexible EMIs. Whether purchasing new or second-hand, we make your car ownership experience easy and hassle-free. Want to drive home your dream car? Apply today!

Also Read:
- Is Car Loan Secured or Unsecured?
- Online Cheapest Car Finance | Best Vehicle Loan Apply