By Sumit Chhazed
Owning a vehicle is one of the biggest dreams in most people’s lives. However, the financial implications can be complex. Here’s a detailed look at the various auto finance options available, and the pros and cons of each to help you choose the best finance model for your next purchase.
If you are a salaried or a self-employed person who can’t afford to pay the entire purchase amount outright but have excellent repaying capacity, a loan is mostly preferred. Banks or lenders offer new vehicle loans, used vehicle loans, and loans against a vehicle, depending on their preferences.
New automobile loan: If you are short of funds to buy a new vehicle, this is a good option. Banks, lenders and other financial institutions will help you to buy a vehicle. In return, you will have to repay the borrowed amount to the bank or lender with an interest rate over a set period. Usually, interest rates are in the range of 8-15% and are payable in up to eight years.
Used automobile loan: You may get up to 90% of the valuation of the automobile as a loan. Usually, interest rates are in the range of 8-16% per annum and are payable in up to eight years.
Loan against automobile: One can avail funds for vehicle purchase by using the existing automobile as collateral. The interest rate for this type of loan is a bit high; banks charge 14-15% per annum.
It allows you to drive a vehicle for a specific period of time. The leasing company will provide you with a vehicle, and you will have to pay rental to the company. But full ownership of the vehicle is with the company. At the end of the lease period, you will have to return it to the company.
It’s an option if you want to own a vehicle that, if new, is usually in a higher price bracket, and is one of the most widely used auto financing option.
Long-term savings can be handy if one has set an intention of buying a vehicle with the full purchase cost available.
Auto financing methods have their pros and cons, but are a useful means to buy an automobile. With a little knowledge, guidance from experts and some caution, customers can avail of these options depending on their requirements.
The author is CEO & co-founder, OTO Capital