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Page 1 Financing Basics
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You're sitting in the dealership when the salesperson
asks, "So, how are you going to finance your new car?"
The question leaves you a little confused. What is he really asking?
Getting finance at a good rate needn't be daunting and doesn't need the
financial acumen of a chartered accountant. Don't be the subject of high
interest rates on car loans. Let AutoIndia.com and our partners help you
finance your next car loan today. Find the best rates and coverage for
your car loan through our partnerships with online finance companies. Here you
will be able to find and compare the best rates to fit your budget for your car
loan.
Organized and institutional auto finance has come into its own with the coming
in age of the 90s. Their services are being marketed aggressively and
imaginatively, loans sanctioned quickly and formalities completed within a day
or two.
In a recent research it was found that the total outstanding auto loan book at
the end of March 2004 was Rs 34,100 crore (Rs 341 billion) and is expected to
have risen to Rs 43,780 crore (Rs 437.8 billion) at the end of March 2005. The
total disbursements in 2003-04 were Rs 22,700 crore (Rs 227 billion) and are
estimated to have risen to Rs 26,700 crore (Rs 267 billion) in 2004-05.
For the average loan seeker, however, deciding on which loan to take, on what
terms, whether to go to the financier or the bank, the marketing jargons, the
dealers to choose -afford a veritable dilemma. In such a scenario, it would be
much better if you were a well - informed customer and knew what was in store
for you. We hope this page will go a long way in clearing those cobwebs that
had you flummoxed.
Taking a loan amounts to your committing yourself to regular payments for a
while, till you pay off your amount you have loaned that is.
On the plus side, loans offer you the chance of buying a vehicle when you
cannot afford to buy it upfront.
Financially too, it is a viable offer. Generally the financiers offer 80% of
the total amount of the vehicle as loan. Keeping this in mind, if a vehicle
costs Rs. 2.25 lakh today, you will receive a loan of Rs. 1.80 lakh. At the
current rate of interest at 16%, you will have to repay Rs. 6,330 for the next
36 months.
Alternatively, saving the same amount of money saved would get an interest of
12% and it would be 30 months before you bought the vehicle. By 30 months, your
investment amounts to roughly Rs. 2,20,000 which will still be 80% of its value
at that time, assuming its price has shot up to Rs. 2.75 lakh by now. The big
difference, however is, that had you taken that loan, it would have been in
your possession 3 years earlier.
So, going back to the salesperson's question, "How are you going to finance
your new car?" your answer could be one of three things:
"I want to buy the car."
"I will be paying cash for the car."
Let's look in more detail at each of these financing options so you can know
what to expect at the dealership:
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"I want to buy the car."
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If you decide to buy the car and you want the dealership
to help you finance it, you will be asked to fill out an application. A loan
will be arranged through the dealership's preferred institution based on the negotiated
price of the car and related expenses (sales tax, registration and
licensing fees). Loaning money is big business, and most auto manufacturers
have their own companies to arrange loans
You will probably be asked how quickly you want to pay off your new car. Most
auto loans are from three to five years -- 36 to 60 monthly payments. Different
lengths of time can be arranged, if desired. Obviously, the longer you take to
pay off the loan, the lower the payments will be. In addition, the amount of
your monthly payment will depend on the interest rate, the length of the loan
and the amount of your down payment. Keep in mind that the dealership will urge
you to make a large down payment.
While you are paying off the balance you owe on your car, the lending
institution will hold the car's title. Once all the payments are made, the
car's title is sent to you and you finally own the car.
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"I will be paying cash for the
car."
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Paying cash for a new car makes the transaction very
simple -- all you need to do is negotiate the price of the car and then write
the dealer a check for this amount. This removes several variables from the
negotiation process: the down payment, the interest rate and the monthly
payment. Negotiating in this manner means the dealership can't disguise the
true cost of the car.
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Interest & EMIs on Car
Loans
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Loan
for new Car |
| Financiers |
Interest Rates
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Min EMI for 3yr loan/Rs1
lakh
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Min EMI for 5yr loan/Rs1
lakh |
| ICICI Bank |
11%-13% |
3274 |
2174 |
| HDFC Bank |
10.5%-12% |
3222 |
2131 |
| SBI |
9.75%-10.25% |
3227 |
2125 |
| Citibank |
11%-12.5% |
3150 |
2200 |
| ABN Amro |
11%-12.5% |
3246 |
2155 |
| Sundaram Fin |
7%-11.5% |
3200 |
2220 |
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Loan
for Used Car |
| Financiers |
Interest Rates
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Min EMI for 3yr loan/Rs1
lakh
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Min EMI for 5yr loan/Rs1
lakh |
| ICICC Bank |
16%-18% |
3516 |
2432 |
| HDFC Bank |
17% |
3516 |
2451 |
| Citibank |
16%-18% |
3550 |
2600 |
| ABN Amro |
17% |
3516 |
2450 |
| Sundaram Fin |
14.5% |
3400 |
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Disclaimer: These figures are approximations, that can differ from
city to city and for different car models. Financial offers are also guided by
the financiers' deals with the car makers.
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Summary
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AutoIndia.com can help you by using our experience in
car buying and selling research to get the best competitive
finance rates. We'll tell you what's available, what your rights are
and our online calculator
will show you how much you will be repaying each month. There are several
different strategies for buyers to reduce their costs at the dealership. For
more information on these subjects, review the other finance and Car Buying
sections available on AutoIndia.com.
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