Once you have zoomed onto the car of your dreams, getting finance for the car is the next step. Here's how to choose the correct car loan for you.
Buying a car is an important decision. From looking at the right design, model and features, there are numerous factors to consider. Typically, banks offer three types of car loans – new car loans, used car loans and loans against cars.
Today we will talk about new car loans. Once you have zoomed onto the car of your dreams, getting finance for the car is the next step.
Choose your budget, tenure and rate of interest
By now you have chosen your car and estimated your budget. However, make sure the budget includes running cost for the year. The next thing that you need to consider when opting for a car loan is the rate of interest. Generally, borrowers having an existing relationship with a bank get loans at relatively lower interest rates. Some banks offer loans at rates as less as 8 – 9.5% per annum. You can get upto 80% of the car amount financed by the bank.
Do shop around for the best rate for you. It helps if you can choose the minimum loan repayment tenure as it can help you save money in the long run. For example, you may be quoted a smaller EMI amount for a 7-year loan period but you would need to pay more interest for longer tenures.
Compare finance options
This brings us to the finance options that are available. You have a choice of getting funding either on ex-showroom price or on road price (this includes showroom price and the registration fee and accessories). You can also choose what type of loan you prefer. Either fixed interest rate loan, this is especially if you are on a budget. You can even go in for a variable rate of interest if you can take the budget risk.
There are also different types of loan schemes you can look at. There is the ‘Step up scheme’ for salaried individuals. The EMI increases 10% every year assuming that your salary will also increase.
Enquire about fees and charges
Look out for processing fees as various lenders charge different fees and hence a comparison of various lending options can help you make an informed decision. Some of the most common charges and fee levied on the customer are loan processing fee, documentation charges, credit report charges, registration certificate collection charges, stamp duty, late payment charges, amortization schedule charges, loan cancellation charges, swap charges, bounce charges, etc. You should compare additional fee and charges of various banks before choosing your lender.
Ask about prepayment
Another very important question that every borrower should ask his lenders is what are the prepayment charges. Many banks levy prepayment charges, foreclosure charges and other fees when the borrower wants to pay off his debts before the tenure ends. You should always choose a bank that charges you the minimum in such events. Many banks do not levy foreclosure charges after two years of sanctioning of the loan. Those banks should be given a preference which levy low or no foreclosure charges.
Getting Loan insurance is important
Lastly while getting car insurance is important, getting insurance for the loan ‘Loan Suraksha’ is also something you should consider. This can be a lifesaver in unforeseen circumstances.
Scrutinize schemes and offers
Given it’s the festive season there will be many attractive offers and deals being provided by banks and financial institutions. If you have a sound credit profile, do research these as you may bag a customized deal that gives you many benefits.
We hope these tips help you in choosing the right car finance for you. You can even seek the help of a loan official or authorized dealer but do research the options at hand thoroughly before making a purchase. Happy shopping!
(By Bhaskar Karkera, Chief of Wheels, AU Small Finance Bank)