How to Refinance a Car Loan in India


As of mid 2009, India is a developing country that has been hit by some tough financial times and many individuals are struggling to make ends meet. Perhaps their debt is increasing or they are simply worried about depleting cash reserves and are looking for ways to save more money. The good news is that help is available. If you are a consumer who has a high-interest auto loan, you may be able to improve your financial health by refinancing your car loan in India.

  • Understand the process of refinancing. Refinancing is the process by which one loan is paid off completely by taking another loan. The new loan typically has a different, but more attractive, payment structure and a payment schedule that is more suited to your financial situation and needs. With your refinanced car loan, you are granted a lower EMI (Equated Monthly Installments), lower interest rates and a more flexible loan term, which can save you money over time.

  • Decide whether refinancing is for you. Now that you understand the process, you need to figure out if whether now is the right time to refinance your car loan. Most individuals finance in order to change their rate of interest. The Reserve Bank of India constantly changes the interest rate after taking into account many factors, such as inflation. So, if you bought a car when the rates were high than they are today, it may be a good time to think about refinancing.

    Another factor for refinancing is whether your bank will impose a penalty for early repayment of your auto loans. Many Indian banks impose a penalty for pre-payment. In order to avoid this penalty, you can pay off the loan with another loan and start making EMI payments on the new loan.

  • Choose your bank. Start with your existing bank or one that you have a long standing reputation with. In addition, you can also check online offers at sites like APN loans that allow you to conduct a comparison of interest rates and special refinancing offers. See the Resources section for a link. Either way, make sure that you review all offers before making a decision.

  • Gather required information and documentation. Once you have decided on a bank and are certain that you want to refinance your car loan, you must gather the required documents.

    Most banks in India require certain documents, and they have eligibility criteria that you must meet before they will refinance your car loan. First, they look for you to have a steady monthly income either through self-employment or a salaried position. Usually financial gurus recommend that car loans be no more than 2.5 to 3 times your annual salary and up to 6 times your annual salary if you are self-employed.

  • There are some documents that are required by the bank before they refinance your car loan. Your bank or lending institution will need a document to prove your identity, and for this they accept apassport, a driver's license, a voter ID or a PAN. They will also require proof of residence (in which you can use your ration card). Finally, they need some documents like the latest salary slip, Form 16 of last year and the last six months' bank statements. After these documents are produced, there will be a field investigation by one of the bank's employees and, if everything is found satisfactory, the refinancing loan will be approved.


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