• Planning to buy a car this Diwali? Check these important parameters

    For Indians, Diwali is the most ideal time to make big purchases like buying a new car. This period is not only auspicious for investing in a new vehicle, but is extremely profitable for the buyers. As a slew of offers and discounts are rolled out by car manufacturers and dealers during this period, a considerable amount of savings can be made on your purchase.

    Banks and Non-Banking Financial Companies (NBFCs) may reduce the interest rates and even waive the processing fees on the loans just before Diwali to attract more customers. Hence, you will be able to take car loans from top banks at low interest rates.

    Here are a few tips that will help you to compare and choose the best deal before buying the car on Diwali:

    • Avoid taking a Loan through Car Dealers
    • Initially, taking a car loan from dealers might seem to be an easier option for you. But this is not always the profitable option. Car dealers have tie-ups with banks from whom they get commission on each new application. However, there are chances that they don’t have tie-up with banks who are offering loans at the lowest interest rates. Therefore, it may be better to avoid the dealers and search for car loans on your own. This will enable you to get car loans at better interest rates and advantageous terms compared to the loans offered by the car dealers.

    • Check the Interest Rate on the Car Loan
    • While taking a car loan from any financial organization, it is obligatory to check the interest rates and the type of the loan that the lender is offering. Generally, a car loan is offered by the banks in two different variations, a fixed or a floating. To decide the profitable one, you must know the difference between both and how they work.

    • Fixed or Floating Interest Rate
    • Both the fixed and floating interest rate charged by a bank is directly associated with the minimum rate of interest below which the bank can’t give a loan, which is known as MCLR.

      A fixed interest rate doesn’t fluctuate based on the market conditions and allows the borrower to accurately calculate the payments. If you want a fixed interest rate throughout your loan tenure, fixed rates will be better for you. Conversely, the floating interest rate is not fixed and can change from time to time during the loan tenure. Since it rises and falls with the market, it affects the associated financial decisions of the borrowers. Nevertheless, if you want the interest rates to come down in future, floating interest rates will work for you.

    • Evaluate the Fees and Charges
    • The next important criterion to compare car loans is the fees and the charges levied by banks and NBFCs. It is important that you have a clear idea and knowledge about all the fees and charges that you have to pay the lender in advance before applying. Sometimes, lenders might have some hidden charges or complex terms and conditions which if ignored might lead you to troubles in future. To avoid this, understand all the fees and charges you have to pay during the loan tenure, evaluate between lenders and then take a decision. Also, make sure that read all the terms and conditions well before signing on the dotted line.

    • Check the Processing Fee
    • When you apply for a loan, you need to pay an amount to the bank for processing your loan request. Banks generally charge 0.5% of the total sanctioned loan amount along with additional taxes, though it might vary from bank to bank. Also, during Diwali most of the banks give good amount of discount on the processing fee and some even waive 100% processing fee on the loan making it more affordable for the borrowers to apply for the loan. Hence, it is wise to check out the processing fees levied by the banks on car loans before applying for one.

    • Consider the Documentation Charges
    • Along with the processing fees, you might need to pay a one-time documentation charge to the bank while applying for a car loan. Typically, banks charge a minimum of Rs.300 to Rs.600 to conduct the documentation process on every loan applied with them. Since this is an additional cost that you have to pay while applying for a loan, you must keep this under consideration while comparing different car loans.

    • Foreclosure or Pre-Payment Charges
    • When you have some extra fund in hand, you might feel to pay off the loan amount to reduce the monthly interest outgo of the loan. But banks don’t encourage this type of early payment and some banks even charge penalties on the pre-payment or foreclosure of the loan. Generally, the banks take almost 5% of the loan amount along with additional charges if the borrower forecloses his or her loan. Hence, it is wise to compare and choose a bank which allows part-payment of car loan to avoid the extra charges. The best thing is, during Diwali some banks give loans to the new applicants with zero foreclosure charges.

      Note: Some banks offer pre-payment option only to the salaried borrowers and not to other professionals or self-employed individuals.

    • Car Loan on ex-showroom or on-road price of the vehicle
    • While applying for a car loan, don’t miss to check out the exact loan amount offered by the bank. Most of the times, banks give the loan amount on the ex-showroom price of the vehicle, while some offer a loan on the total cost of the car.

    • Decide the Loan Tenure based on Repayment Ability
    • Car loans come with flexible loan tenure ranging between 1 year and 7 years. Most of the time, borrowers tend to go for a long tenure as the EMI amount is low for long tenures compared to loans with short tenures. Moreover, some people feel they won’t be able to repay the amount within a short period. However, a higher interest will need to be paid in the case of a long tenure.

      For example: If you take Rs.5 lakh loan for 7 years, you might have to pay Rs.1,86,000 as interest, whereas for the same loan taken for 60 months you only have to pay Rs.1,30,000 as loan interest.

    • Read the Terms and Conditions Carefully
    • Most of the times, the car dealers keep the term and conditions vague or you might miss out something important if you sign the document in hurry. So, be careful and go through all the terms and conditions well before finalizing. If you fail to understand some clause, don’t hesitate to ask bank executives or get help from any expert.

      It is important that you compare car loans offered by different lenders before opting for one. Certain lenders offer lower interest rates when compared to other lenders for the same tenure. Comparing lenders can help you choose the right car loan. It is vital that you read the terms and conditions carefully before opting for the car loan.

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