Do you need that car loan? Here are pointers on things to look out for before applying

Oct 05 2013, 10:56 IST
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A car loan is, however, a double-edged sword. A car loan is, however, a double-edged sword.
SummaryIt may seem like you're easing burden by paying in small chunks, but you could end up paying a lot more.

Car loans can be deceptive. It may seem like youíre easing the burden by paying in small chunks, but you could end up paying a lot more. We give you pointers on things to look out for before applying

Buying a car on a finance scheme gives buyers the liberty of not having to invest a large chunk of their savings in a single investment. Whatís more, finance schemes are available on almost every car on sale here. Finance companies offer loans of up to 90% of the carís value, or in some cases, even the entire amount, depending on the repayment scheme and the model of the car. Our advice would be to pay as much as possible in terms of downpayment, so that the amount you return over the years (with interest) is minimised. A downpayment is the initial payment made when the car is financed, whereas the remaining amount is paid in small chunks, called instalments, over a period of time.

A car loan is, however, a double-edged sword. For starters, while it does allow you the flexibility of paying the overall amount over a certain period of time, one must keep in mind that you will have to pay back much more to the bank. As an example, on a loan of R6 lakh at an 11% rate of interest, you will have to pay back approximately R36,000 for every lakh borrowed over a three-year scheme or R60,000 over a five-year scheme.

Itís also worth noting that some loans will be offered on the ex-showroom price of the car. Itís easier on your pocket if you negotiated with the bank and got the loan based on the on-road price, as the loan will cover registration charges, insurance, road tax, and a few other costs. Also, some banks may have a really large processing fee, but if your credit history is clean, itís very likely that youíll get a waiver on your processing fees.

Listed below are the various parameters you should be aware of before applying for a car loan.

Eligibility & credit history

Banks set some criteria that need to be fulfilled by the loan applicant before a loan is granted. The bank verifies your income statements for a certain duration before deciding on the loan amount they deem fit to fund. They also go through CIBIL (Credit Information Bureau India Limited), which maintains records of your loans and credit card

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