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Car Loan Misconceptions – Top Myths

Myth 1

"Zero down payment means free or very cheap car finance."

Reality: Zero down payment loans exist but come with higher interest rates (0.5–1.5% higher) and stricter eligibility. The total cost-of-ownership is often significantly higher than a loan with a 20% down payment.

Why this is dangerous

Borrowers take zero down payment loans, forget about higher rates, and end up paying ₹1–2 lakh extra in interest over the loan tenure.

Practical Example: ₹15 Lakh Car Loan

Cost Battle
Option A (0% Down)
Rate: 11.5% | EMI: ₹31,800
Interest: ₹3.08 Lakh
Expensive overall.
Option B (20% Down)
Rate: 9.5% | EMI: ₹23,955
Interest: ₹1.77 Lakh
Saved ₹1.3 Lakh.
Pro Tip: Compare total cost (interest + insurance + maintenance), not just EMI. Mid-range down payment (15–20%) often offers best value.
Myth 2

"Only showroom finance is safe; outside bank loans are risky."

Reality: Both showroom finance (dealer-arranged) and direct bank loans are safe if from registered institutions. Direct bank loans often have lower rates (8–10%) vs. showroom finance (10–12%).

Why this is dangerous

Borrowers accept higher showroom rates out of a false belief in "safety" and overpay for dealer convenience.

Practical Example: Buying a ₹12 Lakh Car

Source Check
Showroom Finance
Rate: 11.5%
Pros: Convenient.
Cons: Higher Cost.
Direct Bank Loan
Rate: 9.5%
Pros: Saves ₹1.5–2 Lakh.
Cons: Requires separate application.
Pro Tip: Negotiate car price first. Then apply to 2–3 banks directly for loans before falling back on showroom finance.
Myth 3

"Used car loans are always bad; buy only new cars with loans."

Reality: Used cars offer immense value if properly inspected. While rates are slightly higher, the principal amount is lower due to depreciation, leading to lower EMIs.

Why this is dangerous

Young professionals waste ₹5+ lakh buying expensive new cars when ₹8–10 lakh used cars serve equally well with lower financial burden.

Practical Example: ₹3 Lakh Budget

Smart Buy
New Car (Tata Nexon)
Price: ₹12 Lakh
Loan: ₹9 Lakh @ 10%
EMI: ₹32,000/month
Used Car (Honda City)
Price: ₹10 Lakh (4 yrs old)
Loan: ₹8 Lakh @ 11%
EMI: ₹20,000/month

*Used car EMI is 37% lower. Depreciation hit is already absorbed by the previous owner.

Pro Tip: Buy 3–5 year old cars from certified dealers. Finance at 10–11% rates (lenders are comfortable with age <6 years).
Myth 4

"Car loans always require 100% finance or high down payment."

Reality: Lenders offer LTV (Loan-to-Value) up to 80–100% depending on vehicle age and credit score. You rarely need a massive down payment if your credit profile is strong.

Why this is dangerous

Buyers assume they must save 40–50% for a down payment, delaying their purchase unnecessarily when they qualify for higher LTV.

Practical Example: Ms. Sharma (₹18L Car)

Eligibility

Savings Available: ₹2 Lakh

Old Belief
"I need ₹6 Lakh (33%) down."
Result: Can't buy car.
Actual Approval
Lender offers 84% LTV.
Down Payment: ₹2.8 Lakh.
Result: Purchase feasible.
Pro Tip: Check your LTV eligibility with lender before fixating on down payment amount. Good credit scores (750+) get higher LTV.

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