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Car Loan Or Car Ov...

April 01, 2015 17:29

Most car buyers who opt for financing a loan think it’s the only option to purchase their dream car. They are not aware of the other possible options such as car loan overdrafts facility. There is an intrinsic difference between a standard auto loan and an auto loan with overdraft facility, and both of them have their pros and cons.

What are auto loan and car overdraft loan?

Over 80% buyers get car finance in India, since it’s a convenient way to buy an expensive vehicle. Financing loan for a new car is a lot easier than for the used cars, as that includes several terms on available specific variants or models. While applying for an auto loan, the borrower needs to submit his/ her bank statements, income proofs and KYC documents to the bank. Then, the bank processes the application and decides on the amount of the loan and down payment, depending on the credit rating of the borrower.

In the case auto overdraft loan, the loan account is associated with an overdraft (OD) account of the borrower. While calculating the interest factors, the OD account will be withheld from the main outstanding on a daily basis.

Advantages of car loan with overdraft facility

  • A borrower doesn’t have to pay any pre-payment charges in auto loan with an overdraft facility. Using their OD account, they can pre pay any amount.

  • One of the best things about the auto loan with overdraft facility is that the interest is charged on the effective due amount, not the entire loan amount. And the effective due amount has lower repayment than a standard auto loan.

  • The OD loan account money can be used according to financial requirements of the borrower. There is no limitation on LTV (loan-to-value-ratio). The borrower is allowed to avail up to 100% of the value of the car, if he or she is eligible to the OD account. 

  • The last car loan interest rate is charged only for the balance amount. 

Drawbacks of car overdraft loans

  • Auto loan with overdraft facility is available only with specific banks.

  • These auto loan are usually offered to the borrowers who are looking for more than fixed limit (Rs 7 Lakhs generally). So, the small car buyers can’t apply for the overdraft car finance in India.

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