If you really think about it, it's easier getting a loan for a car than a loan for bus fare!
  • Car Loan BYTES FROM OUR KITCHEN

    How Down Payments Affect Your Car Loan?

    There are multiple banks and Non-Banking Financial Companies (NBFC) in India that offer car loans to help customers buy their dream cars even when they don’t have enough funds for it. However, if you make a down payment while purchasing a car, you will only have to borrow a loan amounting to the balance price of the car. This will help you repay your loan quickly while saving on the interest that you pay to the lender. If you choose not to make any payment, the lender will have to loan you 100% of the price of the car. Many banks and NBFCs don’t even allow a 100% car loan since the risk associated with such a loan is more. Therefore, understanding the benefits of making a down payment during your car purchase will help you choose a make and model that will be best suited for your needs, and make an informed decision regarding the same.

    What is a Down Payment?

    The upfront cash that is paid while purchasing an item is known as down payment. This money is paid by the customer using his or her savings. When opting for a car loan, the customer can directly pay part of the total price of the car while the rest of the money will be paid by the bank or NBFC. This payment need not be made just using cash. A customer can also make a payment using a cheque, demand draft, electronic payments etc. depending on the retailer.

    When an item carries an offer for ‘zero down payment’, it means that the customer does not need to pay any upfront cash in order to purchase the item. However, it is a good idea to still do so since paying cash upfront carries numerous benefits.

    Effect of Down Payment on a Car Loan

    Down payments are inversely proportional to car loans. Since part of the total cost of a car is paid upfront, the more down payment you make, the less loan you will have to borrow in order to match the price of the car. This will, in turn, help you repay your loan faster. In addition to this, a smaller amount of loan also means that you will have to pay less money as monthly installments. Therefore, making a payment upfront while purchasing a car makes taking a loan easier on the pocket.

    For example, a person plans on purchasing a car worth Rs.3 lakh and chooses a loan tenure of 5 years. If he or she makes a down payment of Rs.80,000 then he/she has to avail a car loan of Rs.2.2 lakh which should be paid back within 5 years along with the interest. However, if the individual decides to pay Rs.1.5 lakh upfront, he or she will only have to repay a loan amount of Rs.1.5 lakh excluding the interest. When this loan is paid in 5 years, it will significantly reduce the sum that the applicant will have to pay as equated monthly installments (EMI).

    Effect of Down Payment In Terms of Loan Tenure

    When securing a loan, the tenure of the loan repayment plays an important role on the EMIs paid by the candidate. If you avail a loan that is more spread out over the years, you will have to pay less EMI every month in order to repay the loan. If a large sum is paid off as down payment, you will need a smaller loan amount to meet the total price of the car you plan to purchase. Therefore, this will increase your repayment capability and you will be able to clear off your debt earlier. When the loan is repaid sooner, the money that you will need to pay as interest to your financing bank or NBFC will also reduce.

    On the other hand, if you pay a large sum upfront and are still willing to pay the same EMI for the same loan tenure, you will have more funds available as compared to when you don’t make a payment. This way, you will be able to purchase a car of a higher price. By choosing to pay with upfront cash, you would no longer have to settle for a car with a lower price tag anymore. Instead, you can now buy the make and model of the car that you have always dreamed of.

    This can be further explained using the following examples:

    • Example 1 - Let us assume that a candidate wants to buy a car priced at Rs.3 lakh. Now, if the individual doesn’t make any down payment, he or she will be able to repay the debt in 5 years considering his/her maximum repayment capability. However, if he/she decides to pay Rs.1 lakh with upfront cash, the loan tenure will come down to 3 years if assumed that the person is willing to pay the same amount as EMI.
    • Example 2 - Similar to the previous example, a person plans to buy a car without any down payment. Let us assume that he or she is eligible for a car loan of Rs.3 lakh considering the maximum repayment capability of the candidate is Rs.5,000 for the maximum loan tenure available. In such case, the candidate can purchase a car worth a maximum of Rs.3 lakh. However, if the individual decides to pay Rs.1 lakh upfront and is still willing to pay Rs.5,000 as EMI for the same loan tenure, he or she will still receive Rs.3 lakh as loan. But, in this scenario, the person can buy a car worth a maximum of Rs.4 lakh.

    How Down Payments Affect the Interest Rate

    In addition to the loan amount and loan tenure, making a down payment also affects the interest that you pay for your car loan. According to many banks and NBFCs, the chances of getting a loan approved increases tremendously if a candidate pays a large percentage of the total price of the selected car with upfront cash since the associated risk will be less. When you avail a loan of a higher amount, the chances of defaulting increases. Therefore, banks are likely to reject a loan if you don’t make a zero or less payment upfront. Paying a large percentage of the total price is also helpful when you don’t have a good credit score. This way, the loan amount will be less and the lender can be assured of your repayment capabilities.

    Making a down payment reduces the term of a loan. Since the interest rate is compounded throughout the entire loan tenure, the reduction in the term requires less amount to be paid as interest. Additionally, when you borrow a smaller amount through car loan, you might be eligible for a lower interest rate. Therefore, a customer can save more if he or she makes a bigger down payment irrespective of the term of the loan.

    Conclusion

    Making a down payment while purchasing a car not only helps you borrow a smaller loan and pay the debt in a shorter period of time, but also impacts the rate of interest of your car loan. While some manufacturers provide a ‘zero down payment’ offer, it is still a good idea to pay with upfront cash to the best of your capability in order to enjoy long term benefits such as high net savings.

    Customer Reviews

    • Capital First Car Loan
      "Excellent"
      0.5 5.0/5 "Blown Away!"
      I got my car loan from Capital First and its been 3 months. I have purchased i20 new car and they have provided me 85% funding. The interest rate is okay and the charges has been informed, after getting confirmation from me then loan amount was credited to account. The tenure is 36months.
      Was this review helpful? 0
      , mumbai
      Reviewed on Mar 19, 2019
    • Reliance Commercial Finance Car Loan
      "Average "
      0.5 2.5/5 "Just OK"
      I have taken a car loan in Reliance Finance and it was suggested by the dealer. I have purchased a seconded car and the loan amount is 4.5L which was sufficient. The interest rate is high compared to others also processing fee is applicable. The customer service is not good and they need to improve on.
      Was this review helpful? 0
      , pune
      Reviewed on Mar 19, 2019
    • ICICI Bank Car Loan
      "Average service"
      0.5 3.0/5 "Satisfactory"
      I had been taken my car loan with ICICI bank previously, The loan amount which they have charged me was nominal,and th rate of interest they have charged me was nominal,they have charged according to the market price,and they have charged me processing fee or not i have no idea,like i took loan for 4,80,000,i need to pay extra 20,000 as charges,while closing loan they took to high charges,now 3 years happened i have closed this loan.
      Was this review helpful? 0
      , mumbai
      Reviewed on Mar 18, 2019
    • ICICI Bank Car Loan
      "Average"
      0.5 2.5/5 "Just OK"
      I applied directly for Car Loan with ICICI Bank. I have applied for the Loan amount of more than 1lakhs six thousand for the tenure of 3 years ,rate of interest was high ,processing fee was high ,agent clearly explained the process ,rate of interest was less when the agent told and Tata Capital agent gave high rate of interest. While submitting documents it took so long .
      Was this review helpful? 0
      , ahmedabad
      Reviewed on Mar 18, 2019
    • ICICI Bank Car Loan
      "Quick service provider"
      0.5 5.0/5 "Blown Away!"
      My car loan with ICICI bank,, they approved the loan on time, I have purchased Hyundai I10 in 2017, the bank have sanctioned the showroom price of the car, the delivery was happened on time. Rate of interest is reasonable, I don't have any issues.
      Was this review helpful? 2
      , gurgaon
      Reviewed on Mar 16, 2019
    • SBI Car Loan
      "Excellent"
      0.5 5.0/5 "Blown Away!"
      I have purchased a Hyundai i20 car and took a loan with SBI 2 years ago. The interest rate was very competitive and there was no processing fee because as a customer as well as of employee. Being an employee, I got a long tenure of 15 years. Also foreclosure can be done without any charges.
      Was this review helpful? 3
      , mumbai
      Reviewed on Mar 15, 2019
    • HDFC Bank Car Loan
      "Good service"
      0.5 4.0/5 "Great!"
      I have been holding my car loan with HDFC bank for an while,The loan amount which they have given me was sufficient,they have given me loan on basis of my requirement,and the rate of interest they have charged me nominal, and the processing fee they have charged or not i have no idea,still this loan is running.
      Was this review helpful? 2
      , chennai
      Reviewed on Mar 15, 2019
    • ICICI Bank Car Loan
      "Very good"
      0.5 4.0/5 "Great!"
      I taken four wheeler loan with icici bank last seven month and I satisfied loan amount ; my loan amount is 2.80Lack and rate of interested is 9.25% and emi amount is rs - 5795 rupees . customer service provided is good response is good . I am happy with icici bank
      Was this review helpful? 0
      , faridabad
      Reviewed on Mar 14, 2019
    • HDFC Bank Car Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      I had taken this Car loan a long time back and the experience i had with them was quite good. The loan amount was sufficient and the interest rate with them has been nominal as well. There has not been any extra charges which they had made and the customer support team of them has been helpful.
      Was this review helpful? 2
      , gurgaon
      Reviewed on Mar 14, 2019
    • SBI Car Loan
      "Very Good Service"
      0.5 5.0/5 "Blown Away!"
      I had taken this Car loan almost ten years back and the process in getting this loan was pretty good. The loan amount which they had provided was sufficient and the interest rate with them has been nominal. There was no additional charges which they had made as well.
      Was this review helpful? 1
      , chennai
      Reviewed on Mar 14, 2019
    • AU SMALL FINANCE BANK Car Loan
      "Not satisfied with the service"
      0.5 2.0/5 "Expected more"
      The experience i had in getting this loan was not quite good. The process had been okay and the loan amount was sufficient. But the interest rate with them has been pretty high and the charges which they had made has also been high as well. I am not happy with their customer support as well.
      Was this review helpful? 1
      , bangalore
      Reviewed on Mar 13, 2019
    • Axis Bank Car Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      It was quite a good experience i had with this Car loan and the process had been pretty simple. The loan amount which they had provided was sufficient and the interest rate with them has been nominal as well. There has not been any sort of extra charges which they had made as well.
      Was this review helpful? 0
      , hyderabad
      Reviewed on Mar 12, 2019
    • HDFC Bank Car Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      I had taken this loan a long time back and the process in getting this loan was pretty good. The loan amount which they had provided was sufficient and the interest rate with them has been quite nominal as well. Even their customer support team has been pretty much helpful.
      Was this review helpful? 1
      , bangalore
      Reviewed on Mar 12, 2019
    • SBI Car Loan
      "Very Good Service"
      0.5 4.0/5 "Great!"
      The experience with this Car loan was pretty good and the process went pretty smooth where the disbursement happened within a week. The loan amount which they had provided was sufficient and the interest rate with them has been nominal as well. The charges which they had made has also been nominal.
      Was this review helpful? 2
      , bangalore
      Reviewed on Mar 12, 2019
    • Punjab and Sind Bank Car Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      I had taken this loan a long time back and the experience with them was pretty good. The loan amount was fine and the interest rate was also nominal. They had waved off the processing fee which was almost equal to one premium since some festival offer was going on.
      Was this review helpful? 1
      , chandigarh
      Reviewed on Mar 11, 2019
    • Canara Bank Car Loan
      "Good service"
      0.5 5.0/5 "Blown Away!"
      I have taken a car loan with CANARA BANK . The tenuity period is sufficient , my application was taken care by CANARA and they processed it keeping my documents . Rate of interest if i see its reasonable compare to market value. I am happy with Overall services..
      Was this review helpful? 1
      , hyderabad
      Reviewed on Mar 11, 2019
    • SBI Car Loan
      "Good service"
      0.5 5.0/5 "Blown Away!"
      My car loan was taken with SBI , the process of getting loan was too fast i just got my loan in few days and i do not have to worry about document . The tenure period is 7 year and they charge nominal rate of interest and about processing fee was also good . They gave option of preclosure too .
      Was this review helpful? 0
      , chennai
      Reviewed on Mar 11, 2019
    • Axis Bank Car Loan
      "Good service"
      0.5 4.0/5 "Great!"
      I have been holding my car loan with Axis bank for an while,They have given me good credit limit based on my requirement , and the rate of interest they have charged me was nominal compare to the market value, even processing fee which they have charged me was nominal,Still this loan is running.
      Was this review helpful? 0
      , pune
      Reviewed on Mar 11, 2019
    • HDFC Bank Car Loan
      "easy disbursement"
      0.5 5.0/5 "Blown Away!"
      I have taken a car loan from Hdfc Bank. The loan amount was Rs. 4 lakhs. They have provided door step service for the documentation collection its really good. They Have disbursed the loan amount to the dealer on committed on time.I am happy with the rate of interest 9.40%. I have taken a car model Tata Tigior xt.
      Was this review helpful? 1
      , ghaziabad
      Reviewed on Mar 11, 2019
    • HDFC Bank Car Loan
      "Very Good Service"
      0.5 4.0/5 "Great!"
      I had taken this loan a long time and it was offered through my company. The process in getting the loan was pretty easy and the loan amount which they had provided was sufficient. The interest rate and the charges with them has been as per the market rate and they had not taken any extra charges.
      Was this review helpful? 0
      , hyderabad
      Reviewed on Mar 11, 2019
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