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!
What kind of impact is the Nano likely to create?
The high selling point of the Nano at this point in time, is the extremely affordable price tag and the fact that it looks quite fetching in terms of looks and gives consumers the snazzy feel of commuting in a hi-tech “cool” car. It comes with an Engine Management System (EMS), components of which have been designed by Bosch and has safety features like the fuel injection being cut off if you reverse the car too fast and a warning light displayed on the dash board with a buzzer chime being set off in case of high engine temperature, engine misfire, over speeding etc.
Now everyone can own a car! The family of four struggling for space in a dangerously wobbling two wheeler, on a rickety road inspried Ratan Tata to think of launching an affordable car for the masses. Ofcourse to set the thought in motion, gather together the brains, the infrastructure, the resources and meet the challenges enroute took around six long years but the big Nano moment is finally here! Intitial reports claim that the car is a cleverly designed smart piece of auto engineering, which comes with an affordable price tag and attractive looks!
Touted as next in line of “People cars”
The economics of it, the first information reports of the test drives taken, and the looks of it are factors that is getting everyone excited about the model, the make and the manufacturer. Tata operates around the USP of bringing products to the masses, making them as affordable as possible. Time will tell how the future of this move pans out. So far the initial response for the product has been mostly positive.
Safety a key factor for upgrading from a two-wheeler
It will definitely eat into the two wheeler pie, as a car offers more safety than a two wheeler and its more likely that more and more youngsters and people who have to commute long distances to work, and small families who travel within the city together will find the Nano a safer and more comfortable alternative. Designed for a family of four, though shorter by around 8% in length compared to the average small car, its is reported to have around 21% more spacious interiors.
Likely value for money for the used car buyer
People who have the option for buying a small used car to reap the benefits of affordability and fuel efficiency, could choose to buy a new car in the form of Nano. With 624 cc engine Nano is a city car that is claimed to have a fuel efficiency of around 20 km per litre. The average Km per litre range of most other small cars is between 10km and 14 km per litre within the city.
The small car segment vs Nano
Though the impact of Nano on the two wheeler segment and used car segment could be relatively high compared to its impact on the small car segment, this again depends on the performance of the car, how it stabilises and user reviews of initial performance once it hits the roads. In recent times, a host of new products have been launched in the small car segment by popular brand names like Maruti, Hyundai, Chevrolet and the like. The high selling point of the Nano at this point in time, is the extremely affordable price tag and the fact that it looks quite fetching in terms of looks and gives consumers the snazzy feel of commuting in a hi-tech “cool” car. It comes with an Engine Management System (EMS), components of which have been designed by Bosch and has safety features like the fuel injection being cut off if you reverse the car too fast and a warning light displayed on the dash board with a buzzer chime being set off in case of high engine temperature, engine misfire, over speeding etc.
However the disadvantage seems to be the long waiting period that the car buyer is likely to face in purchasing the Nano. An aspiring small car buyer who cannot afford to wait for too long, may tread with caution with regard to opting for a 100% payment for booking and then waiting for months before owning the car.
The lending scenario
The consumer perspective
All the former two wheeler aspirants who were looking to purchase one in the range of 40,000 plus will want to upgrade their choice, tilting the scales in favour of the Nano. They may take a loan for the remainder of the money. People who had been saving up a downpayment to buy a brand new small car, could decide against taking a loan ( as the popular sentiment towards debt has always been one of caution as far as Indian consumer is concerned) and opt to go with the Nano instead.
The lender perspective
Reports suggest that the two wheeler loan segment shows higher delinquency rates and hence the interest rates of two-wheeler loans generally range between 21 and 23%. As Nano aspirants are also largely expected to fall under this category, according to the credit profile of the consumer the interest range could have been anywhere between 17% and 19% or higher. The ongoing interest rates for car loans with most banks is in the range of around 14%. Also, banks who finance loans for the most affordable cars, tend to hike up the required downpayment as this particular segment of auto loans is likely to fall under the high default category.
In the wake of such a scenario, the exclusive SBI- Tata agreement for funding the purchase of Nano seems to pave way for the masses as a first step towards having access to the most affordable car in the market. The Nano car loan is available for a maximum tenure of 7 years at an interest rate that ranges between 11.75 and 12% p.a.
Through this tie-up, more than 1350 branches of State Bank of India would assist in the booking process, besides, Tata Motors passenger car dealerships nationwide, Croma and Westside stores. SBI will be managing and marketing the application form sale from 11,111 plus branches. Applicants have the option of making the full booking payment by themselves or seek financing for Nano booking from SBI with a downpayment that starts from Rs. 2.999/- onwards.
As there is a very high demand for Nano compared to the actual supply currently, bookings are being taken only for 100% payment with a possibly long waiting period. Tata is likely to face more challenges especially in catching up with the demand, as such a product will invoke mass demand hinging pretty close to the demand seen for two-wheelers. This would especially hold true if the new launch stands the test of time.