Buying Your First Car? How to Get a Loan in 7 Easy Steps

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Introduction: The Dream of Your First Car

 

Hello, and welcome to Fiknow!

What is the first thing you think of when you imagine buying your first car?

Is it the “new car smell”? Is it the freedom of a long drive on the highway with your family? Or is it the pride of parking your very own car in your building?

Buying a car is a special feeling. It is a big milestone in every Indian’s life.

But for most of us, there is one big question: “How do I pay for it?” Cars are expensive. Not many people have 10 or 15 lakhs in cash sitting in their bank account.

And that is where a car loan comes in.

Think of a car loan as a helpful partner. It’s a special loan from a bank that pays for your car today, and you pay the bank back in small, easy monthly payments (EMIs). This is how millions of Indians buy their cars.

But getting a loan can feel confusing. What is a CIBIL score? What is a down payment? What is a “fixed” interest rate?

This guide will make it simple.

We will walk you through the entire process, step-by-step, like a friend holding your hand. We will explain all the difficult words in simple language. By the end of this guide, you will be an expert, and you will be 100% ready to buy your dream car without any fear or confusion.

A Very Important Note (Disclaimer):

We at fiknow.com are here to give you knowledge. This article is for information and education only. It is NOT financial advice. A car loan is a big financial promise (a “commitment”) for the next 3 to 7 years. Please read all loan documents from the bank very carefully before you sign.

Ready to start your engine? Let’s begin.

Part 1: A Quick Reality Check (Are You Really Ready?)

 

Before we get to Step 1, let’s have a quick, honest talk. A car is a big responsibility.

A car is a “depreciating asset.”

  • A “depreciating asset” is something that loses value over time.

  • The moment you drive your new ₹10 lakh car out of the showroom, its value might drop to ₹9 lakhs.

  • This is not like a house or gold, which usually gains value.

A car’s real cost is not just the EMI. The “Total Cost of Owning a Car” includes 4 things:

  1. Your EMI: This is the monthly loan payment.

  2. Fuel: Petrol or diesel. This is a big monthly cost.

  3. Insurance: You must pay for insurance every single year.

  4. Maintenance: Servicing, tyre changes, and repairs.

So, the question is not “Can I pay the EMI?” The real question is: “Can I pay the EMI plus the fuel, plus the insurance, plus the maintenance?”

A Smart Money Rule: The 20-4-10 Rule

 

Finance experts have a smart rule for buying a car. It’s called the “20-4-10 Rule.”

  • 20% Down Payment: You should try to pay at least 20% of the car’s price from your own pocket.

  • 4-Year Loan: You should try to take a loan for only 4 years (48 months), not 7.

  • 10% EMI: Your total car cost (EMI + Fuel + Insurance) should not be more than 10% of your monthly take-home salary.

You don’t have to follow this rule, but it is a very safe way to make sure your car remains a joy and doesn’t become a money-sucking monster.

Okay, reality check over! Let’s assume you have thought about this and you are ready.

Here are the 7 easy steps.

Step 1: Check Your “Money Report Card” (Your CIBIL Score)

 

This is the most important step. Do not even look at a car before you do this.

What is a CIBIL Score?

Think of your CIBIL score as your “Money Report Card” from school.

  • It is a 3-digit number from 300 to 900.

  • This number tells every bank in India how responsible you are with money.

  • Have you paid your old loans on time? Your score goes up.

  • Did you miss your credit card payments? Your score goes down.

Why does it matter for a car loan?

The bank manager will check this score first. This number will decide three things:

  1. Will you get the loan? (Yes / No)

  2. How much loan will you get? (e.g., 80% or 90% of the car’s price)

  3. How much interest will you pay? (This is the big one)

Here is how a bank sees your score:

Your CIBIL Score What the Bank Thinks… Your Loan Chances
780 – 900 “Excellent! This person is the class topper. A ‘Gold’ customer. Very safe.” Approved! You will get the lowest interest rate and the fastest approval.
720 – 779 “Good. This person is a ‘Good’ student. Responsible. A safe bet.” Approved. You will get a good interest rate.
650 – 719 “Average. A bit risky. Sometimes late on payments. We must be careful.” Maybe. The bank might reject you, or they may approve you but charge a higher interest rate (a “penalty”).
Below 650 “Poor. This is a ‘Risky’ customer. They miss many payments.” Very High Chance of Rejection. You will find it very hard to get a loan from a good bank.

So, the secret is: A high CIBIL score (above 750) is your Golden Ticket to a fast and cheap car loan.

How to Check Your CIBIL Score for FREE?

 

You don’t have to guess. By law, you can check your score for free.

You can go to the official websites of the four credit bureaus in India:

  • CIBIL (TransUnion)

  • Experian

  • Equifax

  • Crif High Mark

Many apps like Paytm, GPay, and your bank’s app also show you your score for free.

What if Your Score is Bad? (How to Fix It)

 

What if you check your score and it’s 620? STOP. Do not apply for the loan.

You will be rejected, and the rejection will lower your score even more!

Instead, take 6 months to fix your score. It’s easy.

  1. PAY EVERY SINGLE BILL ON TIME. This is the #1 rule. Pay your credit card bill, your phone bill, your old EMIs. Set reminders. Never be late.

  2. PAY DOWN YOUR CREDIT CARD. If your credit card limit is ₹1,00,000, do not use more than ₹30,000 (30%). If you are using ₹90,000 (90% utilization), your score will be very low. Pay this down first.

  3. DO NOT APPLY FOR NEW LOANS. Every time you apply, the bank does a “hard inquiry,” which drops your score.

  4. CHECK FOR MISTAKES. Look at your credit report. Did an old loan company forget to mark your loan as “Closed”? Call them and get it fixed.

Fixing your score from 620 to 750 can save you ₹50,000 to ₹1,00,000 in interest payments over the life of your loan. It is worth the wait.

Step 2: Decide Your Budget (How Much Car Can You Really Afford?)

 

You have a good CIBIL score. Great!

Now, how much can you really spend?

Your budget has two parts:

  1. The Down Payment (The money you pay from your pocket)

  2. The EMI (The money you pay every month)

Part A: The Down Payment & LTV

 

  • Down Payment: This is the money you pay to the car dealer from your savings.

  • LTV (Loan-to-Value): This is the amount the bank will pay. It is a percentage.

    • Most banks offer 80% to 90% LTV for new cars.

    • This means, for a ₹10 lakh car, the bank will give a loan of ₹8 to ₹9 lakhs.

    • You must pay the rest, ₹1 to ₹2 lakhs, as the down payment.

The Golden Rule: The bigger your down payment, the better it is for you.

Why?

  • A big down payment means a smaller loan.

  • A smaller loan means a smaller EMI.

  • A smaller loan means you pay less total interest.

If you pay ₹3 lakhs down instead of ₹1 lakh, you will save thousands of rupees and sleep better at night.

Part B: The EMI (Your Monthly Promise)

 

This is the fixed amount you will pay the bank every month.

  • A longer loan (like 7 years) = a smaller EMI.

  • A shorter loan (like 3 years) = a bigger EMI.

The Second Golden Rule: Your total car EMI should not be more than 10% to 15% of your monthly take-home salary.

  • If your in-hand salary is ₹80,000 per month, your car EMI should not be more than ₹8,000 to ₹12,000.

  • Why? Because you still have to pay for rent, food, electricity, savings, and the car’s petrol!

So, how do you find your budget?

  1. First, decide how much EMI you can comfortably pay (e.g., ₹10,000).

  2. Go to any bank’s website and use their “Car Loan EMI Calculator.”

  3. Enter the EMI (₹10,000), a tenure (e.g., 5 years), and an interest rate (e.g., 9%).

  4. The calculator will tell you the loan amount you can get (approx. ₹5 lakhs).

  5. Now you know your budget!Your Total Car Budget = Your Down Payment (e.g., ₹2 lakhs) + Your Loan (₹5 lakhs) = ₹7 lakhs.

You are now shopping for a ₹7 lakh car. This is a smart way to shop.

Step 3: New Car Loan vs. Used Car Loan (Choose Your Path)

 

This is a big decision. Both have pros and cons. The loan is also different for both.

Let’s compare them side-by-side.

New Car Loan

 

You are buying a brand new, 0-km car from the showroom.

  • Pros:

    • That “new car smell” and new technology.

    • Peace of mind (0 repairs, 3-5 years warranty).

    • Better Loan: The bank gives a lower interest rate (e.g., 9%).

    • Better LTV: The bank will give a higher LTV (up to 90% or even 100% of the ex-showroom price).

  • Cons:

    • Depreciation: The car loses 10-20% of its value the moment you drive it out.

    • Higher Price: It’s much more expensive.

Used Car Loan (or “Pre-Owned” Car Loan)

 

You are buying a car that is 2-5 years old.

  • Pros:

    • Lower Price: You can get a ₹15 lakh car for ₹8 lakhs!

    • Slower Depreciation: The first owner already took the biggest value hit.

    • You can get a better car (a bigger, safer model) for the same price as a new, smaller car.

  • Cons:

    • Higher Risk: The car may have hidden problems.

    • Worse Loan: The bank sees this as riskier.

    • Higher Interest Rate: The interest will be 2-4% higher (e.g., 11% to 14%).

    • Lower LTV: The bank will only give 70-80% of the car’s valuation price.

    • Age Limit: The bank will not give a loan for a car that is very old (e.g., more than 7-8 years).

Fiknow.com Advice:

For a first-time buyer, a “Certified Pre-Owned” car from a trusted dealer (like Maruti True Value or a big company showroom) is a good middle path. You get a car that is checked by the company, has a limited warranty, and you can still get a good loan.

Step 4: Shop for the Loan (Before You Shop for the Car)

 

This is the pro-level secret that most people miss.

What do most people do?

They go to the car showroom. They test drive a car. They fall in love with it.

Then, the salesman says, “Sir, don’t worry about the loan, we will do it for you.”

You are excited, so you say “Okay.”

This is a mistake.

  • The car dealer is not your friend. He is a salesman.

  • He will push you to a bank or NBFC that gives him the highest commission, not the one that gives you the lowest interest rate.

The Smart Way: Get a “Pre-Approved” Loan

  1. Do your homework: Go online. Compare the car loan interest rates from 3-4 different banks (e.g., SBI, HDFC, ICICI, Bank of Baroda).

  2. Apply to your bank: Go to the bank where you have your salary account. You have a good relationship with them. They will give you the best offer.

  3. Apply for a “Pre-Approved Car Loan”: You tell them, “I want to buy a car for around ₹10 lakhs. Can you pre-approve my loan?”

  4. Get the “Sanction Letter”: The bank will check your CIBIL and salary and give you a letter that says, “You are approved for a ₹9 lakh loan at 9% interest.”

Now, you walk into the car showroom like a boss.

You are a “cash buyer.” You can negotiate the car’s price. You can ask for free accessories. You are not dependent on the dealer. This gives you all the power.

Step 5: Understand Interest & Fees (The “Hidden” Costs)

 

When you look at a loan offer, do not just look at the EMI. You must look at the “fine print.”

Part A: The Interest Rate (Fixed vs. Floating)

 

  • Fixed Rate: The interest rate is “locked” for the whole 5 years. If the rate is 9%, it will always be 9%. If the RBI increases rates, your EMI does not change.

  • Floating Rate: The interest rate is linked to the market. If the RBI increases rates, your rate might go from 9% to 9.5%. Your EMI will go up.

For car loans, 99% of all loans in India are FIXED. This is good. It gives you peace of mind. You know exactly what your EMI is for the next 5 years.

Part B: The “Fine Print” Fees

 

This is where they hide the extra costs. Always ask the bank manager about these 4 fees:

  1. Processing Fee:

    • This is a one-time “file opening” fee.

    • It is usually 0.5% to 2% of your loan amount (e.g., on a ₹8 lakh loan, it could be ₹4,000 to ₹16,000).

    • Pro Tip: This fee is almost always negotiable. If you have a good CIBIL score, ask the manager, “Can you please make this fee 50% off or make it zero?” They will often agree.

  2. Foreclosure / Pre-payment Charges:

    • Foreclosure: What if you get a big bonus and want to pay the entire loan off early?

    • Pre-payment: What if you want to pay an extra ₹50,000?

    • Many banks charge a “penalty” for this (e.g., 2% to 5% of the amount you are pre-paying).

    • Pro Tip: Ask for a loan with ZERO pre-payment charges. This gives you flexibility.

  3. Late Payment Fee:

    • What happens if you miss your EMI on the 5th of the month?

    • The bank will hit you with a big penalty (e.g., ₹500 + 2% extra interest).

    • This also destroys your CIBIL score. Never, ever miss an EMI.

  4. Stamp Duty:

    • This is a small, compulsory government fee for the loan agreement. It is usually a few hundred rupees.

The “APR” (Annual Percentage Rate)

This is one word you should learn.

  • The “Interest Rate” (9%) is just the interest.

  • The “APR” (e.g., 9.5%) is the real cost of the loan. It includes the Interest Rate plus the Processing Fee.

  • Always ask the bank: “What is the final APR?”

Step 6: Collect Your Documents & Apply (The “Paperwork”)

 

You have your pre-approval. You have chosen your car. Now it’s time to give the bank your final papers.

This is the easiest part. Just make a file.

Checklist for Salaried Employees (You get a monthly salary):

  1. KYC: PAN Card, Aadhaar Card.

  2. Address Proof: Electricity Bill or Passport.

  3. Photographs: 2-3 passport-size photos.

  4. Income Proof:

    • Latest 3 months’ Salary Slips.

    • Latest Form 16 (from your company).

    • Latest 6 months’ Bank Statement (where your salary comes).

  5. Car Document: The “Proforma Invoice” from the car dealer. This is the bill that shows the car’s exact price.

Checklist for Self-Employed (You have your own business):

  1. KYC: PAN Card, Aadhaar Card.

  2. Business Proof: Your GST registration, or shop license.

  3. Photographs: 2-3 photos.

  4. Income Proof:

    • Latest 2 or 3 years’ Income Tax Returns (ITR).

    • Your business’s Profit & Loss statement.

    • Latest 12 months’ Business Bank Statement.

  5. Car Document: The “Proforma Invoice” from the dealer.

Just like you would need a good “Project Report” if you were applying for a big https://fiknow.com/dairy-farm-subsidy-loan/, this file is your “project report” for your car. Make it clean and complete.

Step 7: Read the Agreement, Sign, & Get Your Keys!

 

This is the final and most exciting step.

You will go to the bank (or the bank manager will come to you). He will give you a big, 10-page file. This is the Loan Agreement.

DO NOT JUST SIGN IT.

You must read the most important page, the “Loan Schedule.”

Check these 5 things:

  1. The Final Loan Amount: Is the amount correct?

  2. The Final Interest Rate: Is it the same 9% that you were promised?

  3. The Tenure: Is it 5 years (60 months) as you asked?

  4. The EMI: Is the EMI amount correct?

  5. The Fees: Check that the processing fee is what you agreed on.

If everything is correct, sign the agreement.

What happens next?

  1. Disbursement: The bank will not give the ₹8 lakh loan to you. The bank will send the money directly to the car dealer.

  2. You Pay Your Part: You will pay your down payment (e.g., ₹2 lakhs) to the dealer.

  3. Get Your Keys! The dealer has now received the full ₹10 lakhs. The car is yours!

  4. Hypothecation: When you get your car’s RC (Registration Certificate), it will have a line on it: “Hypothecated to HDFC Bank.”

    • This is a big word. It just means the loan is active. It tells the RTO that the bank is the “co-owner” of the car.

A Final “Bonus Step”: After Your Loan is Finished

 

In 5 years, you will pay your last EMI. Hooray! But your job is not done.

  1. You must call the bank and ask for a “No Objection Certificate” (NOC) and a “Form 35.”

  2. This proves your loan is cleared.

  3. You must take these papers to your RTO.

  4. The RTO will then remove the bank’s name from your RC.

  5. Now, and only now, are you the 100% owner of your car. Many people forget this and have big problems when they try to sell the car.

Conclusion: You Are Ready!

 

Congratulations! You are no longer a beginner. You are a smart, informed car buyer.

It looks like a lot of steps, but it’s simple. Let’s review:

  1. Be Ready: Understand the total cost of a car (not just EMI).

  2. Check CIBIL: Your CIBIL score is your “Golden Ticket.”

  3. Set Budget: Decide your Down Payment and your EMI first.

  4. New vs. Used: Decide which path is right for you.

  5. Get Pre-Approved: Shop for the loan before you shop for the car.

  6. Read the Fine Print: Check the Interest Rate, Processing Fee, and Pre-payment rules.

  7. Apply & Sign: Collect your papers, and read the final agreement before you sign.

A car loan is a fantastic tool. It helps you get your dream car today. By following these steps, you are not just buying a car—you are making a smart, safe, and professional financial decision.

Happy driving!

Frequently Asked Questions (FAQ) Section

 

Q1: What is the minimum CIBIL score for a car loan?

A: Most good banks (SBI, HDFC) want a CIBIL score of 750 or higher for their best interest rates. Some NBFCs might give you a loan if your score is 650-700, but they will charge a much, much higher interest rate. Below 650 is very difficult.

Q2: Can I get a 100% car loan (zero down payment)?

A: Yes, it is possible, but it is often a trap. Banks or dealers will offer 100% “on-road funding.” This means you pay zero from your pocket. But this is bad for two reasons:

  1. The interest rate will be much higher.

  2. Your loan is very big, so your EMI will be huge.It is always smarter to pay at least 10-20% as a down payment.

Q3: What is better: a 3-year loan or a 7-year loan?

A: A 3-year loan is always better if you can afford the EMI.

  • 3-Year Loan: High EMI, but you pay less total interest and you are free quickly.

  • 7-Year Loan: Low EMI, but you will pay lakhs more in just interest. And, you will still be paying EMIs when your car is 7 years old and needs expensive repairs. Try to take the shortest loan you can comfortably afford.

Q4: Can I get a car loan if I am self-employed or have no ITR?

A: If you are self-employed, yes, you can get a loan. You must show your last 2-3 years’ ITR (Income Tax Returns) and your business bank statements. If you have no ITR, it is almost impossible to get a loan from a good bank.

Q5: Can I pre-pay my car loan?

A: Yes. But, unlike home loans, banks are allowed to charge a “pre-payment penalty” (e.g., 2-5%) on fixed-rate car loans. You must ask the bank about this rule before you sign.

Q6: What happens if I miss one car loan EMI?

A: It is very bad.

  1. The bank will charge you a big “Late Fee” (e.g., ₹500 + 2% interest).

  2. The bank will report you to CIBIL, and your CIBIL score will crash by 50-70 points.

  3. If you miss 2-3 EMIs, the bank can send “recovery agents” and may even repossess (take back) your car. Never, ever miss an EMI.

External Links (For Your Own Research)

 

We want you to be 100% informed. Please check these official websites for more information.

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