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How do I get an auto loan?
What are the stages involved in availing a
loan?
How much loan can I get?
What role does credit profile play in
taking a car loan?
Is it necessary to have an account with
the bank from which you take a loan?
Do I need to pledge any thing or give
collateral to get a car loan?
How long will it take to process the loan?
Is verbal commitment final?
Who can be a guarantor?
What is the extent of liability of the
co-applicant and the guarantor?
Is the eligibility and documentation
similar for all the financiers?
Can I get finance for insurance and
registration?
How do I repay my loan?
How do I pay the Equated Monthly
Installment (EMI)?
How is the interest calculated?
What is a rack rate and a floor rate?
Over what period can I pay off my loan?
What documents do I need to submit after
the loan amount is disbursed?
What happens after I have paid the last
equated monthly installment?
Is EMI a proper measure for comparing the
deals of various players?
Can I reduce or change my EMI?
How is annual reducing balance different
from monthly reducing balance?
Is floating rate of interest a better
option than fixed rate of interest?
How can I increase the amount of loan
that I can take?
Can I pay off my car loan before the
tenure is up?
What happens if my cheque bounces?
Can I change the tenure and amount of
loan taken after the loan amount has been disbursed?
Can I delay my installments?
What happens if the car meets with an
accident?
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How do I
get an auto loan? |
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Tap various dealers for the various finance
schemes floating in the market. You can choose from margin money schemes,
advance EMI's schemes and deposit payment schemes. Normally margin money
schemes offer the best terms, but ultimately effective interest rate of the
loan is what actually matters. This method provides a common platform for
comparison of different schemes by discounting on the basis of cash flows.
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What are
the stages involved in availing a loan? |
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The prescribed forms are available with the
Mandal Revenue Officer of the respective Mandal. |
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Application
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Processing
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Documentation
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Sanctioning of the loan
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Disbursement
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How much
loan can I get? |
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The size of the loan will depend upon the cost
of the vehicle, the type (standard or premium) and the percentage financing you
are offered. If you are buying a new car, you can get financing up to 90%
financing. Some finance agencies have a limit beyond which they do not offer
loans. Keep this in mind. Also most of the financiers have different terms for
different models. Generally, the percentage of finance given on car models is
decided on the basis of second hand market. Models like Maruti 800 have a huge
second hand market. In case the buyer defaults, the finance company can get a
higher resale value for the car. This makes the financier comfortable enough to
give higher percentage finance.
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What
role does credit profile play in taking a car loan?
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Credit Profile is one of the most important
factors that will be considered before you get the loan. Your credit profile
normally reveals if you intend to pay back the loan. Age, occupation, income,
financials, previous credit history play a vital role in determining your
credit profile. |
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Is it
necessary to have an account with the bank from which you take a loan?
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There’s no compulsion for you to have a prior relationship with the financier.
Banks normally have no problem in giving auto financing to people who do not
have an account with them because they are protected by the lien that they hold
on your car. However, look out for certain privileges that you may enjoy
because of being an account holder/customer of the said bank.
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Do I need
to pledge any thing or give collateral to get a car loan?
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No, there’s no necessity for any collateral. The
bank will only need you to hypothecate the car in its name. Most financiers
will insist on an endorsement being made in the Registration Certificate (RC)
book of the vehicle. This will be cancelled after you repay the loan. |
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How long
will it take to process the loan?
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The loans are generally approved within 24 hours
of submission of complete documentation. This time frame may vary banks to
bank. You need to submit requisite documents like salary slip, tax returns,
proof of residence, bank statements etc. If you decide to take a loan from the
nationalised bank, it will take at least one week for the loan to get processed
because there is heavy paperwork involved. |
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Is verbal
commitment final?
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No, absolutely not. Unless and until you sign on
the dotted line you have an option to back out of the negotiation process any
time you want. You are under no obligation to go through with the deal if you
are uncomfortable with any of the terms or if you are getting a better deal
elsewhere.
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Who can
be a guarantor?
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A guarantor can be any relative, or a director
in case of private limited company. The relative is defined as Father, Mother
(including Step mother), son (including step son), son’s wife, daughter
(including step daughter), son’s son, son’s wife, son’s daughter, daughter’s
daughter, daughter’s husband, brother (including step brother), brother’s wife,
sister (including step sister), wife/husband and sister’s husband. Boy what
that confusing! Well in short, almost all the near and dear ones you know could
be the guarantors. However for consideration of these relatives as guarantors
for the loan they should comply with the age and other norms of the company. |
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What is
the extent of liability of the co-applicant and the guarantor?
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A co-applicant has as much responsibility as the
primary applicant and is equally liable to the finance company from which the
loan is taken. The guarantor on the other hand promises to pay the bank in case
the applicant(s) default on the payment. Both the co-applicant and the
guarantor are liable for re-payment and the financing agency has the right to
collect from either or them. |
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Is the
eligibility and documentation similar for all the financiers?
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This is something all financiers keep common
norms on — almost 90% of the financiers have similar eligibility criteria. For
e.g. age should be between 21-58, the candidate applying for the loan must have
a minimum annual income of Rs 60,000 (this may vary slightly with different
loan providers). Usually the documentation asked for is latest salary slip if
you are working, latest audited balance sheet and profit and loss account if
you are self employed, proof of residence, signature verification, Form 16,
bank statement, credit card statement if any etc. |
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Can I
get finance for insurance and registration?
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Most financiers do not cover Insurance and
registration. The ex-showroom price is considered which does not cover
insurance and registration charges. |
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How do I
repay my loan?
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Normally, the loan is repaid through Equal
Monthly Installment or EMI’s. The EMI consists of the contribution you make to
partly pay off the principle and partly the interest that is due. There is a
facility for back loading of the EMI whereby EMIs payments are lower initially
and increase as and when the loaner’s income increases.
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How do I
pay the Equated Monthly Installment (EMI)?
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Normally, all financiers ask for Post Dated
Cheques (PDC) for the entire repayment period or at least for the first two
years. But nationalised banks may require that you have an account with them
for at least 6 months or so and your installment will be directly debited to
your account. If you don’t have an account, open one. Sometimes, the
installment is directly taken from your salary if there is an agreement between
the financier and your employer. |
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How is
the interest calculated?
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The interest is usually charged on a flat rate
or on a reducing balance which can be either daily, monthly, quarterly or
annually. |
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What is
a rack rate and a floor rate?
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The Rack Rate is the rate that the financier tells you about, at the start of
the negotiation or the one that is normally mentioned in their brochures.
This rate is arrived at after taking into account the deductions from the rack
rate. Normally, you may be entitled to the deductions because of your
negotiating skills itself or because you satisfy some of their conditions.
These deductions vary from scheme to scheme and financier to financier. They
may be in the form of reduction in the interest rate because you hold the
credit card of that financier, your good track record of paying back loans, or
a host of other reasons.
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Over
what period can I pay off my loan?
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The tenure of the loan could range from one to
seven years for new cars and from one to five years for used cars. Higher the
tenure, lower is the EMI. but the total interest outflow is higher. |
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What
documents do I need to submit after the loan amount is disbursed?
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You can keep the original car documents,
registration certificate, insurance policy, tax papers with you. But you need
to submit a photocopy of the same to the bank. |
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What
happens after I have paid the last equated monthly installment?
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After the last payment is made get the lien of
the bank on your car cancelled. The bank will issue a NOC certificate and Form
35 to cancel the hypothecation on the car. The RTO requires an NOC and Form 35
for up-dating the RTC book. Also the insurance company requires an NOC to make
the necessary changes on the policy taken out. |
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Is EMI a
proper measure for comparing the deals of various players?
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Not really. There are other charges like
processing fees, advance EMI's if applicable, other up-front payments (stamp
charges), registration charges, insurance which need to be factored in before
comparing the various deals. |
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Can I
reduce or change my EMI?
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No the EMI cannot be altered once you have
signed the agreement with the loan provider. However you can pre-pay the loan
amount in which case there will be some penalty. |
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How is
annual reducing balance different from monthly reducing balance?
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In case of an annual reducing basis, the
outstanding principal gets adjusted once a year while in the monthly reducing
balance basis, the principal gets adjusted on a monthly basis. Hence, more of
your principal gets repaid in monthly reducing basis than in annual basis.
However, there are banks, which calculate EMI's on a daily or a quarterly
basis. |
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Is
floating rate of interest a better option than fixed rate of interest?
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In case of falling interest rates, a loan taken
on floating rate of interest is a better option but when the interest rates are
rising, opt for a fixed rate loan. If you go for a fixed rate loan, you will
know in advance what your EMI's will be. This will help you in your financial
budgeting. If you opt for a floating rate, you may not be able to budget
properly. |
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How can
I increase the amount of loan that I can take?
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You can increase the amount of loan sanctioned
by clubbing your spouse’s income. The spouse then becomes the co-applicant. |
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Can I
pay off my car loan before the tenure is up?
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Yes you can pre-pay your loan amount. But there
may be certain rules regarding the pre-payment that your financier may have.
You may have to pay a small penalty, which is normally, a percentage of the
loan amount that remains outstanding. In some cases, you may not be allowed to
partly pre-pay the loan amount, i.e. you can pre-pay only in full. Some
financiers do not penalise you if you pre-pay. Take this factor into
consideration when you choose a financier because if you can get a loan later
on at a lower rate of interest this penalty could offset whatever you could
save through the interest rate differential. |
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Can I
change the tenure and amount of loan taken after the loan amount has been
disbursed?
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Yes you can change the tenure and amount of the
loan. But this would imply that the interest rate and the amount of installment
will change accordingly. |
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What
happens if my cheque bounces?
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Besides affecting your credit profile adversely,
legal proceedings could be initiated against you since it is a criminal
offence. |
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Can I
delay my installments?
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It is better not to delay your installments since it will adversely affect your
credit profile and make further borrowing costly.
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What
happens if the car meets with an accident?
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The first step is to inform the insurance
company who sends a surveyor to assess the extent of damage. Your claim is then
processed and paid directly to the financier unless you have taken an NOC from
the financier. You are normally given a NOC if you are regular in your
payments.
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