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The Fine Print in Car Loans
Car loan is an important part of owning a car. According to it, one plans the budget. Car owners in India usually go for a small down payment and the rest is financed by lending agencies. There are numerous lending agencies in India and most of them offer different interest rates.
Car loans are offered by both nationalized banks and private lending. Banks usually offer loans for the period ranging from 3-7 years. But, in order to apply for a car loan one must meet certain criteria. Some of the parameters are age of the borrower, employment, annual income.
Car loans are available up to a maximum of 90 percent of the value of the car. In some cases, car manufacturers are offered 100 percent financing and other freebies like road tax and insurance. These schemes look very attractive and many people fall for it. Most of the young executives are gullible victims to these schemes offered by dealers and private lending banks. But one has to read the fine print in car loan document and ask more questions. Every time it may not be the same as the answers you get.
If you have made a down payment of Rs 1 lakh and have taken a loan of Rs 5 lakh, find out if the interest rates for the car loans are indeed what they are being shown. Then look at the EMI fixed on the car loan. The interest rates are
usually between 12% -16%. Check if the lending agency is deducting your first installment at the time of sanctioning loans. Documentation charges and processing charges are also deducted at the time of giving loans. Most public sector banks start calculating the EMI installment from one month after sanctioning the loans. This means that you are actually paying more EMI for a lesser loan amount.
But public sector banks have their own condition of giving a loan. They ask for more cash down payment and documentation work. The process is slow that forces people to go for private banks. However, these private banks also charge hidden costs which increase the cost repayment.
If you are looking for part pre-payment, find out if the banks have a provision for it. Most banks accept only full payment of loan amount. Most private banks charge 4-5 percent of the pre-payment charges, while public sector banks charge a mere 2-3 percent.
The car buyers are lured by attractive schemes and aggressive promotion by private banks. They are not that profitable as they appear. The public sector banks choose to follow the old rules, but they are more reliable and are mostly transparent in processing car loans.
