Top 5 Mistakes People Make When Taking a Car Loan

Getting a car loan should be a straightforward process, but many borrowers end up paying thousands more than necessary due to avoidable mistakes. In this guide, we'll walk you through the most common pitfalls and how to avoid them.

1. Ignoring Your CIBIL Score Before Applying

Your CIBIL score is perhaps the most important factor in determining your interest rate. Many people apply for a loan without checking their score first, only to be surprised by rejection or sky-high rates. A score below 750 can cost you 3-5% extra in annual interest.

2. Not Comparing Multiple Lenders

Accepting the first loan offer you receive is a costly mistake. Different banks and NBFCs offer vastly different interest rates for the same loan amount. Interest rate variations of 2-4% p.a. across lenders are common, which can mean a difference of 1-2 lakhs over the loan tenure.

• HDFC Bank, ICICI, and Axis Bank typically offer 13.5-16% for good credit profiles
• NBFCs like Bajaj Finance and Tata Capital offer 15-19% rates
• Using a marketplace like Express Credit Hub lets you compare 30+ lenders in minutes

3. Overlooking Hidden Charges and Processing Fees

Banks and NBFCs add numerous hidden charges that inflate your total cost. Processing fees (1-3% of loan amount), documentation charges, insurance charges, and prepayment penalties all add up quickly. Many borrowers focus only on the interest rate and forget about these charges.

4. Choosing an EMI Tenure Without Calculating Total Interest

A longer tenure (7 years) means lower monthly EMI but significantly higher total interest paid. For example, on a 10 lakh loan at 15% p.a., the difference between 5-year and 7-year tenure is over 1.5 lakh in extra interest. Choose a tenure you can afford, but don't unnecessarily stretch it.

5. Not Negotiating or Using Your Existing Relationship

Banks offer preferential rates to existing customers with salary accounts. If you already have a relationship with your bank, leverage it before applying elsewhere. Also, applying near quarter-end (March, June, September, December) can get you better rates as banks work to meet their targets.