Want to raise cash? Your car can be put to good use.
A new kind of finance, called loan against a car, is fast becoming popular. Usually a loan is available for the purchase of a car, but now banks also lend against an existing car. For an individual, this opens up a new avenue for raising finance.
Since this is a loan against collateral, rates are good as well. While banks do not advertise it aggressively, HDFC Bank, Kotak Mahindra and a few others offer this loan. If you already have a car loan, it works somewhat like 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 is old and is valued less.
Yet, the interest rates are better than personal loans. In case of a top-up loan against cars, the disbursement is faster too. The documentation requirements are same like any other loan. For instance, HDFC and Kotak Prime disburse this top-up loan in two-three working days. The asset gets hypothecated for the loan duration.
Unlike in the case of other assets, such as a house, against which one can avail a loan, in this case the price of the car will depreciate in value and, hence, there is a different kind of risk the bank will bear. One of the conditions an individual may need to meet for this kind of a loan is that some banks will lend only to an existing customer who may have already taken a car loan, as the lender has already built up a relationship with the customer and knows the client details.
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. One can get a loan even against a second-hand car. However, 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. Usually, the maximum depreciation of the car value happens in the first year.
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. The loan is given for a maximum period of 60 months depending on the age of the vehicle.