The rate cuts post the demonetization of high-value currency notes have not only led to a fall in the home loan rates, but also in the rates of auto loans, bringing cheers to all those willing for an affordable car ownership. With over Rs15 lakh crore back into the banking system due to the demonetization drive, banks started slashing MCLR and have thus eased the floating auto loan rates. State Bank of India (SBI) recently cut its auto loan rates to 9.20%-9.25% per annum, a 40 basis point reduction from the earlier level of 9.60%-9.65% p.a, while its PSU counterpart Bank of Baroda (BoB) offers auto loans at 8.85%-10.60% per annum.
Basically, the interest rates now range between 8.75% and 13% p.a. The average car loan interest rate was ranging between 9.50% and 15% per annum for most vehicles in 2007.
In the current scheme of things, “you can buy luxury segment cars like Audi, Mercedes-Benz, BMW, Jaguar and others by paying interest at a rate of 8.75%-9.00% p.a. The interest rate for sedan models like Maruti Ciaz and Honda City stands at 9.25%, while loans for hatchback cars like Hyundai i10, Maruti Baleno are offered at 9.50% interest rate. The entry-level cars like Alto are available at 10%-10.25% per annum interest rates across several lenders. However, the setting of such favourable interest rate also depends upon your income, CIBIL score and repayment capability,” says Rishi Mehra, Co-Founder and Director of Wishfin (previously known as Deal4loans).
You just need to find your dream car and apply for a loan by either visiting the website of a lender or the branch to do the same. All necessary documents pertaining to the car along with requisite KYC documents are required to be submitted to the lender for approval & disbursal.
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But before opting for a car loan, make sure you keep in mind the factors mentioned below:
To increase the profit book, dealers try to fix a very high margin on the sales of new cars. So, “a good discount deal is something you should look for to reduce your car ownership cost. When the price of the vehicle goes down, it lowers the amount of EMI and the overall interest repayments over the loan tenure,” says Mehra.
Research on Margins
Margins or, say, down-payments also play a critical role in your car loan journey. The premium segment cars require a borrower to pay more on the margin compared to a sedan or a hatchback car. “Down payment happens only once but can make or break the situation for you. A premium segment car like Audi A3 requires you to pay a sum of more than Rs 3,00,000 towards the down payment, while for sedans like Maruti Ciaz the down payment liability reduces to Rs1,00,000, less than 3 times of Audi A3,” informs Mehra.
Quantum of Finance
A 100% finance for cars stay only in the dreams of a borrower and not on the road. Normally it’s been 80%-90% of either the ex-showroom price or the on-road price of the car. The latter is an add-up to the former. On-road price is a sum total of ex-showroom price, road tax, registration cost, and insurance, if any.
The finance is limited to 60%-80% of the valuation amount in the case of used cars. Want to get a sight of the maximum amount offered at lenders across India? A table below is what you need to glance at.
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Processing fee is another critical element in your car loan journey. It is a fee charged by the lenders to process your car loan application. Either the fee can be a flat amount or a certain percentage of the loan amount, plus any applicable service taxes. Although it is a one-timepayment, you should look at this factor to reduce your cost. You can take a look at the processing fee of different lenders in the table below:
Pick a Car Loan with Shorter Tenure
A car loan is generally offered by lenders for a tenure of 7 years. However, you can choose a shorter loan tenure, say 5 years, to cut down on the interest outgo. Suppose your take-home salary is Rs 35,000 and you wish to buy a Maruti Swift Dzire model whose on-road price is Rs 5.8 lakh. You get a loan of Rs 4.5 lakh at 9.50% interest rate to buy a car. Now check the difference of outgo on loan in two different tenures- 5 years and 7 years.
From the table, you can see an interest difference of 50,753 (Rs. 1,67,803-1,17,050) between 5 and 7-year car loans. You can cut down on the excessive interest outgo of Rs 50,753 if you opt for a 5-year loan of the said car model.
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Keep an Eye on Your Credit Reports
Before approaching for a car loan, take a look at your credit reports to check for the discrepancies there. “The discrepancies can affect your credit profile and force the bankers to raise the interest rate on your auto loan. Do bring the discrepancies to the notice of a credit rating agency and bolster your credit score. This will help prevent the situation of escalating interest rates on the loan,” advises Mehra.
These are some the key points that you need to keep in mind while buying a car. Also, do not lose the sight of your wallet in a bid to encash your car dream. Check out the best offers in the market and pick one out of them.