Skip to main content

Personal Finance: Use Your Car As Collateral

Both a top-up and loan against your car are available at rates marginally lower than personal loans

It's not widely advertised, but a few banks and non-banking finance companies (NBFCs) provide loans against used cars. HDFC Bank offers this product, called loan against cars. Kotak Mahindra's car financing arm, Kotak Mahindra Prime, offers top-up loans to existing car finance customers.

Such loans benefit both customers and lenders. Banks find it cheaper to source business from customers whose credit profile they are already comfortable with. Customers find the rate of interest cheaper than that of a personal loan.

DISBURSALS

While Kotak Mahindra Prime's rate of interest is 11–14 per cent, depending on the loan amount and repayment history, HDFC Bank offers it on a 16 per cent reducing balance. According to Ashok Khanna, senior executive vice president & business head, vehicle loans, HDFC Bank, these loans are comparable to personal loans. Personal loans are unsecured loans and most banks charge over 16 per cent for such loans.

New customers may be offered up to 85 per cent of the car's value. But the valuation per se is dependent on the bank. It depends on variables like the car's age, condition and the depreciation value that increases with age, to arrive at the current value. No wonder, independent experts advise against taking it for very old cars. The value of the loan, in case of a loan against a car, will be restricted to the value of the vehicle. The older the car, the lesser value it would generate for you.

In case of a top-up loan, the amount disbursed is related to how much of the ongoing loan has been repaid by the customer. While Kotak Mahindra 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. So, it works like a refinanced loan would.

RESTRICTIONS ON SALE

Since banks treat the credit facility against the car like any other securitised loan, one needs to hypothecate. The lien is marked on the customer's certificate of registration (the RC book), an important documentary proof of ownership, at the regional transport office (RTO). This would restrict sale of the car until the hypothecation is removed. One needs to obtain a no-objection certificate from the bank and give it to the RTO before proceeding to do so.

So, a person availing a top-up loan in the fifth year of his existing car finance loan will have to wait for an additional three years before he can sell his car. Three years is the maximum term for such top-ups. It would work best if you avail of the top-up while still in the early part of the car finance loan.

OPTIONS

For those looking for quick cash, there are options. However, the rates for loans against property (12-15 per cent) and shares up to `10 lakh (11–16 per cent) may be approximately the same that you need to pay for the loan against your car.

The borrower's credit history is not an important factor when opting for loan against gold, blue chip shares and property, since the collaterals have higher value.

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...

Perpetual SIP - Its Advantages

Retail investors have taken a fancy to investing in mutual funds through systematic investment plans (SIPs). As per industry estimates, Rs 4,000 crore flows into SIPs every month. One way to take advantage of SIPs in a true long-term manner is to opt for a perpetual SIP 1. What is a perpetual SIP? In an SIP , you make periodic investments in a mutual fund scheme of your choice generally every month for a pre defined tenure. While signing up an SIP mandate , you have the option to leave the end-date column blank. If the column is blank, it means the investor has opted for a perpetual SIP . Most fund houses assume this SIP will continue till December 2099 unless you give a written communication to stop it. However, some fund houses require you to tick the `perpetual option'. 2. What are the advantages of perpetual SIPs? Registering an SIP involves a lot of paperwork and it takes time. It is observed that many investors skip their SIP instalments when they go for short-tenure option...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now