Loan Against Tractor – Everything You Should Know About Tractor Refinance Loan

Understanding the Term Tractor Refinancing Loan

An agricultural loan is a motivation that pushes other factors of crop production and plays a vital role in a farmer's life. It encourages farmers to improve economies of scale, launch a new field of production, utilize new technologies and empower them to provide utilities for a widening market. And investment in agricultural equipment like tractors can generate their revenue substantially.

In India, a service is offered by banks to the farmers where they offer them a new and easy loan to pay their existing loan. This is called tractor refinancing. It simply means that you get a chance to repay your current loan with the help of a new loan, even if you possess the tractor entirely or not, it will not affect the loan.

There are certain circumstances when a farmer is stuck in a situation due to non-payment of their existing loan. So, to eradicate this headache from farmer's life, banks have come up with tractor refinancing. 

Factors Affecting the Tractor Refinancing Loan

There are certain factors affecting tractor refinancing loans. Below we have discussed those factors which help in deciding your tractor refinancing value-

1. Existing Loan Amount

Your current loan amount will decide whether you will get a refinancing tractor loan or not. Under this, you can avail loan against your tractor for up to 90% of the tractor's value or up to Rs 10 lakh. Moreover, it also depends upon the make and model of your tractor.

A refinance loan and a current loan indicate a direct relationship between them. A higher current loan means a higher refinance tractor amount. For instance, if your existing loan amount is Rs 7 lakh, so, the refinancing loan amount can be anywhere between Rs 8-9 lakh, depending on your loan term period and the number of EMI's already paid in your current loan. 

2. Tenure of Existing Loan 

When you opt for a longer tenure in your current loan, you end up paying higher cumulative interest charges over that period. However, it also means that you will get a greater loan amount when you apply for the tractor refinance. 

3. EMI for Your Existing Loan 

Refinancing a tractor loan implies paying off an existing loan with the help of a new one that offers attractive interest rates or lower EMIs. Also, defining the EMI of your current or existing loan will authorize you to see how much of the loan amount will be set for the foreclosure of your current loan and how much you will get as cash in hand for the expenditure.

4. Number of EMIs Paid 

The number of EMIs paid in your existing loan is one of the crucial factors in determining your refinancing loan, as it shows how much of the current loan amount is paid till now. The eligibility for a refinancing loan is that you must have paid at least 12 EMIs of your current loan.

The logic behind this set value is simple. This number will affect the refinance loan amount and the split of the refinancing loan amount between the cash in hand you get and the amount that goes for the foreclosure of your existing tractor loan. 

Therefore, the primary factors for determining the refinancing loan are your existing loan amount, make & model of your tractor, loan tenure, number of EMIs paid on the existing loan, and the set EMI amount for your existing tractor loan. Also, there are various tractor loan amount calculators available on the internet, and you can use them to know the refinancing loan you can get against your tractor.

Process for Applying for a Refinancing Loan Against Tractor 

There are certain conditions that you must fulfill for obtaining this loan. Below we have a step-by-step process to apply for a refinancing loan against your tractor-

1. Check Eligibility 

Are you a farmer and seeking for refinancing loan? Well, there is an eligibility criterion that you should check and fulfill for obtaining the refinancing loan. The first thing is you must own a tractor and also have proof of ownership for the same, including the RC of the tractor. Apart from this, you must have an existing loan with 12 EMIs paid. 

2. Choosing Financiers

In India, there are several leading financiers to choose from. The most popular financiers are- HDFC Bank, Kotak Mahindra Bank, ICICI Bank, etc. They provide you with the loan at an interest rate between 17.50% to 23.50%. Moreover, if you are already their customer, you will get more preference, and it will be easier to process further.

3. Documentation Required 

Minimal documents are required like the RC of your tractor for the ownership proof, bank account statement, existing loan bank statement for 6-months showing the current loan EMIs are being paid, KYC documents, and a PAN card copy.

4. Hassle-free Disbursal Process 

After submitting all the required documents on time, you can easily get the loan amount at your bank account in just 48 hours. In case there is a delay from your current loan lender's side because of not getting the NOC, 90% of the refinancing loan amount will still be credited to your account. The remaining 10% will be credited as soon as the NOC is collected from your lender. 

Myths of Tractor Refinancing Loan

As a tractor owner, you might have certain myths in your mind. Below we have mentioned certain myths farmers have in their minds, which should not hamper your decision-making.

1.The first myth is they can't avail this with their existing loan. It is not true as it is available for you when you are in 'bad loan' circumstances. 

2. A refinancing loan is not easy to avail. This is another common myth among farmers. Getting a refinancing loan to pay your existing loan is incredibly easy and is available in low EMIs & high loan amounts. All you need is to fulfill the criteria for obtaining this and must have all the required documents. 

3. One of the common myths is that you need to put your tractor as a mortgage. Unlike a gold loan where you have to mortgage your gold jewellery or gold coins as collateral security, this loan does not pledge your tractor as a mortgage.

Why Do You Need to Buy Tractor Insurance Policy?

If you are a farmer or running a business with multiple tractors for daily operations, having at least a third-party tractor insurance is mandatory as per the law. This protects you financially from any losses or damages to the third party due to your insured tractor.

All businesses are prone to various kinds of risks. If your business is equipped with heavy assets like a tractor, then you must buy a tractor insurance policy, to protect your precious possession from any unwanted mishap. 

If you have an expired tractor insurance policy and planning to renew, then you must opt for the online tractor insurance renewal process, as it will be quick and hassle-free for both you and the insurer. 

Summing It Up 

Now you must have understood the term 'tractor refinance' and its significance in the life of a farmer. Before applying for this loan, you must check if you meet the eligibility criteria or not. After that, you can apply for it from any of the financiers. We hope this information regarding refinancing loans will be relevant and it helps you in your 'bad loan' situation.