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 the car manufacturers and dealers during this period, you can make a considerable amount of savings on your purchase. Moreover, financial organizations 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 a low rate on the eve of Diwali. If you are also planning to buy a car this Diwali, this is a smart move indeed.
But searching out the car loan schemes from the huge pool of offers is a mammoth task. There is a chance of missing out something more profitable and advantageous. Then how to know which loan will be better for you and will give you more benefits? Here are a few tips that will help you to compare and choose the best deal before buying the car on Diwali:
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. Hence, every time they will insist you to take loan from the banks they have tie-ups with. However, there are chances that they don’t have tie-up with banks who are offering loans at the lowest interest rates. So, it is 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.
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, at fixed or floating rate and at flat or reducing rate. To decide the profitable one, you must know the difference between both and how they work.
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.
However, the 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.
Note: Generally, a bank offers only one type of interest rate on a loan. So, first decide the type of interest rate carefully and then choose the bank from which you want to get a loan. Remember, this is a crucial decision that can affect your future financials.
The flat rate of interest is decided on the entire loan amount for the complete loan tenure. In this process, the EMIs or the Equated monthly instalments are not considered while calculating the interest rate. On the contrary, the reducing rate of interest is calculated only on the remaining principal amount on a monthly basis. In this method, after EMI payment the outstanding principal amount gets reduced every month and based on the outstanding balance the next month’s interest rate is decided. This type of interest rate is lower than flat interest rate.
Note: Don’t opt for flat interest rate just because you find the rate offered is low compared to the reducing interest rate. For a customer, a low flat rate of 5.64 percent is just the same as a reducing rate of 10% based on the interest outgo. So, while comparing a fixed rate with a floating rate be careful and don’t get tempted by the low interest rates.
The next important criterion to compare car loans is the fees and the charges levied by the banks. It is mandatory that you have a clear idea and knowledge about all the fees and charges that you have to pay to the bank in advance before applying. Sometimes, banks might have some hidden charges or complex terms and conditions which if ignored might lead you to troubles in future. To avoid this, understand what all fees and charges you have to pay during the loan tenure, evaluate between banks and them take a decision. Also, make sure that read all the terms and conditions well before signing on the dotted line.
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 with a particular bank.
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.
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 before the completion o the loan tenure. 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.
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 the amount on the total cost of the car. To understand which will be the better option for you, you need to know the basic difference between the ex-showroom price and the total cost of the car.
The ex-showroom price of any vehicle is an amount that includes production, manufacturing and transportation cost along with dealer’s share. Though this price varies from city to city, it is the same with dealers belonging to the same city. During festive seasons like Diwali, most of the banks give funding of up to 95-100% of the ex-showroom price of a vehicle. However, the actual cost that a buyer has to pay to drive out of the car showroom is something more than its ex-showroom price. Road tax, registration cost, and insurance cost are added with the ex-showroom price to get the on-road price of the vehicle. Usually, up to 85% finance is provided by banks on the on-road price of the vehicles.
Sometimes, the loan-to-value ratio between both the prices may differ by 10%. So, while applying for a car loan don’t get overwhelmed by seeing 100% funding on the ex-showroom price. Calculate wisely and then decide what will be more beneficial for you.
Car loans come with flexible loan tenure of 1 year to 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. But the fact is that, as long as you carry forward the loan, your total loan interest outgo will be more.
While taking a loan, borrowers usually get tempted to choose a longer tenure since the EMIs are lower compared to a loan with a shorter tenure. However, do keep in mind that longer the period, higher is the total interest outgo.
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.
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.
Visiting each bank website or contacting each bank individually can be quite tedious and time-consuming for you. To avoid all these hassles, visit the official website of BankBazaar. Here you will find the required details, rates of interest and additional fees and charges on one single page. Just compare evaluate and decide the most favourable car loan for yourself. After deciding the car loan, you can check out your eligibility for the same and if you find yourself eligible, you can instantly apply for the loan on the BankBazaar website.
So, choose a car loan now and welcome the new car to your family right before Diwali.
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