Toolkit

Things to look for while securing your EV loan

• Understand the loan terms and conditions: Vehicle loans are characterised by features like loan-to-value ratio (LTV ratio), interest rate, and fees. It is important to review these terms and conditions while assessing the financing options.

Down payment (dependent on loan to value ratio) - A higher LTV ratio means a lower down payment has to be made by the borrower for the EV. In effect, having the lender cover a more significant portion of the vehicle purchasing price can reduce the borrower’s upfront contribution to the purchase of the EV.

Interest rate - Low interest rates reduce monthly payments and ensure the borrower pays less interest over their loan term.

Loan term/tenure - Having a longer loan term can help reduce borrowers’ monthly loan payments but increases the duration of time the borrower is obligated to make loan repayments. Loans with shorter tenure may have higher monthly payments to accommodate for the shorter tenure of the loan. Borrowers should weigh the pros and cons of longer loan terms to determine the length that may best suit them.

Fees - Be aware of fees and other charges. Banks typically charge processing fees and levy a penalty in case a borrower wants to close their loan before the maturity date. Thus, closing a loan before its maturity date may be costly for the borrower if a high fee is levied.

• Apply for a vehicle-specific loan: Loans specifically for vehicle financing offer the most favourable lending terms and interest rates for EV purchases, as the vehicle is used as collateral if the borrower defaults on the loan. Avoid taking a personal loan for a vehicle purchase as personal loans often have higher interest rates and shorter loan terms. Fleet operators may also be eligible for small business loans, also known as commercial loans, and should compare the cost structure of both vehicle and commercial loans to determine the loan that may offer the best rates. Typically, business loans require some form of collateral to be given by the business owner.
• Check your credit history: To avoid providing any additional collateral, other than the EV itself, most banks and NBFCs require borrowers to obtain a certain credit threshold. If possible, avoid loans that require a personal guarantee, where the borrower offers personal collateral, or a third-party guarantor agrees to pay the debt and secure the loan.
• Look for tie-ups between vehicle manufactures and financiers: Vehicle manufacturers are beginning to form partnerships with banks and NBFCs. Be sure to ask about opportunities for availing EV loans when purchasing your vehicle with the dealership or manufacturer.
• Make decisions holistically: Consider interest rates, monthly payments, and fees holistically—loans with a low-interest rate but high fees could lead to higher payments. To compare loan structures, look at the monthly payment amount, fees, charges, and interest.