FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Purchasing a car? Make the most of car loans!
The interest rate offered by banks depends upon several factors like the term of loan, amount of loan, type of interest rate - fixed or floating, whether it is a new car or an old one, credibility of the borrower, age and income of the borrower etc. Therefore, one has to negotiate to get the best deal. Also, it is advisable to look into the entire package deal when deciding which offer is the best.
There is good news for car manufacturers in India - car sales are on a rise! Sales figures show an impressive growth from the beginning of this year with 32 percent rise in January, 33 percent and 20 percent increase respectively in February and March of this year. As compared to the same period last year, the sales figures for April, 2010 have shown a positive growth for most car companies. The total car sales over all segments have increased by 39 percent in the month of April, 2010. Sales for Maruti Suzuki have increased by 23 percent as compared to the sales figures for April, 2009. Hyundai and Toyota have also seen a steep increase in their sales with a 28.10 percent and 77.7 percent rise in their sales respectively. This increase can be attributed to many factors, like,
- Better economy. The Indian economy is falling back on track and people are much more positive as compared to last year. This mindset has encouraged customers to get into big purchases like cars.
- Introduction of new models by auto makers. For example, Volkwagen’s latest hatchback model ‘New Polo’ was already booked for 7300 cars in April, 2010.
- Sales in the small car segment have increased and are leading the sales charts. To give an example, Ford Motor Company’s ‘Figo’ sold 7226 numbers in April of this year as compared to 1833 sales figure of last April.
- Good deals on loans and interest rates by financial institutions are also encouraging people to get into the car market.
Attractive car loan schemes
Banks and other financial institutions are offering attractive interest rates on car loans, both new car and old car, to encourage customers to take loans from them. This in turn is boosting the sales of cars in the country. Most financial institutions offer interest rates within the range of 8.0 percent to 13.0 percent, for a loan term of 1 year to 5 years, on new cars. For example, ICICI Bank is offering a floating interest rate of 9.5 percent to 13.0 percent, SBI has a floating interest rate of 11.25 percent and fixed rate of 8.0 percent on its EZEE car loan scheme, HDFC Bank offers a fixed interest rate of 10.50 percent etc. The interest rates on loans for purchasing used cars are generally higher. For example, SBI charges interest rate of 14.75 – 15.00 percent for used car loans for a 1-5 years term.
Interest rate and loan eligibility
The interest rate offered by banks depends upon several factors like the term of loan, amount of loan, type of interest rate - fixed or floating, whether it is a new car or an old one, credibility of the borrower, age and income of the borrower etc. Therefore, one has to negotiate to get the best deal. Also, it is advisable to look into the entire package deal when deciding which offer is the best. Dealers offer customers attractive schemes such as free car accessories like music system, mats etc. One may also get a cash discount. These factors should be considered while calculating the effective interest rate on the loan.
Repaying your car loan
Lenders require repayment of loan in the form of monthly installments (EMIs). The interest is computed using the compound method. For example, assuming you take a loan for Rs.2L for a period of 5 years at a fixed interest rate of 10.0 percent, your EMI would come to Rs. 4250 per month. The repayment schedule will look like this:
|Year||Loan Amount (Rs.)||Principal repaid (Rs.)||Interest paid (Rs.)||Outstanding balance (Rs.)|