the table before selecting the right one that meets your requirements and expectations.
A convenient option is to take a car loan from the purchased car’s dealer as they have bank representatives or tie-ups with banks to offer lucrative deals as part of a package that includes loans, insurance waivers/discounts and car accessories. Dealers earn a commission on the items they sell, but sometimes, a little higher interest rate or insurance package maybe negated by the accessories offered free with the car. It’s better to evaluate the options from the dealer’s side, as well as directly from the bank or insurance company to ascertain the best deal before taking the plunge.
An important factor to consider when choosing a bank loan is foreclosure, which, simply put, is the closing of a loan earlier than agreed by paying off the remaining debt. On a recent ruling by the Reserve Bank of India, a verdict was passed wherein prepayment (making a payment that’s more than your regular EMI, hence reducing the principal amount that has to be paid back) penalties for loans that have been purchased on a floating rate of interest will be waived. If a foreclosure of the loan is on the cards, be prepared for high foreclosure. A penalty for the same is waived if the next loan is purchased from the same bank after the closure of the earlier one. Some banks also do not allow you to foreclose before a certain period.
Bank loans come with other charges like processing fees and late payment fees. Some banks charge a flat processing fee while others charge a percentage of your loan amount as processing fees. A late payment charge, generally to the tune of 2%, is also levied on the EMIs. These charges, although minor in number, should be evaluated as part of the decision making process. As an example, on an EMI of R10,000, and with a 2% penalty fee charged, your overall EMI for that particular month would be R10,200.
It’s clear that there’s a fair amount you should be aware of before considering a car loan.