The first step towards choosing your new car is deciding how much you want to spend. The next step is figuring out just how you are going to raise that money to begin with and repay it going forward. The final step is contemplating whether you will have enough money in hand for fuel after deducting that and your monthly expenses.
Seriously, while getting a car loan has become much easier, deciding the type of loan (fixed or floating interest rate for starters), tenure (anything from one year to seven), where to take it from (banks, finance companies, etc) and comparing the rate of interest (which can vary from 11% to 17.5%) can be more complicated than learning to drive in the first place. Here are some pointers to make the process less stressful on your mind (and bank balance).
Pricing permutations
The oncars.in website points out that after having finalised the budget and visited showrooms, you will notice that advertisements and showrooms both give completely different prices and make your budget go haywire. Ex-showroom prices and actual prices of cars on road differ depending upon segment, model, accessories, state, city, loan amount etc. Basically, when you see an advertisement, remember that by the time you get the car keys, it will cost you least 10-15% more than the advertised price. Registration and insurance are among the aspects that add to the showroom price of a car.
Online tools
If you want to know how much your monthly loan repayment or EMI will be, just visit the website of any bank (like www.icicibank.com) and use the EMI calculator provided. Banks usually provide up to 90% of the car price, so enter that amount, the current rate of interest offered by the bank and the tenure you want. The EMI will be on your computer screen faster than you can blink. Remember, the longer the tenure, the lower the EMI and vice-versa. So if regular expenses are high, opt for a 7 year tenure loan and if you can spare a substantial amount, opt for a 3 year loan instead.
Key variations
Processing fees, a one-time charge taken for processing and legal paperwork can range from 2-5% of the loan. The lesser the loan, the higher the percentage of charges, it can even touch 10% at times. Also, some institutions may charge a lower fixed interest rate while others may charge a higher floating interest rate. Analyse the implications, do not just go by the numbers.
Money matters
In the fixed interest rate loan, the rate of interest on the whole amount is calculated over the entire duration of the loan and the principal, plus the interest is divided over the number of instalments. In the floating rate format, the interest rate can change at regular intervals and is usually charged on the outstanding balance of the loan.
Break it down
Inquire how much the price tag would be if you pay the entire amount on your own (without any loan). Then approach a finance company or bank to find out how much interest they charge and the costs involved. Finally, visit the dealer again and get a quote for the price with a car loan. Compare the interest rates. Get quotes from other banks and see how they fare. Inquire about prepayment charges for fixed interest loans. Generally they are either 1.5% of the principal outstanding or interest outstanding for unexpired period of loan, whichever is lower.
EMI Comparison
Would you be paying extra for your car loan? Use the loan comparison calculator on car portals (like www.carwale.com) to know the actual interest rate on your loan by providing the loan sanctioned, tenure and EMI. There are certain zero per cent finance schemes but ensure you aren't being charged a higher overall price to compensate for that facility.
The numbers game
On a loan of Rs 1 lakh with a fixed interest rate of 13% for 5 years tenure, EMI is Rs 2,276 while for 3 years tenure it is Rs 3,370. Let's see the EMI on cars between Rs 1.5-15 lakh.
1. Tata Nano: Price Rs 150000. Loan (90%) Rs 135000. EMI for 5 years is Rs 3072, for 3 years Rs 4549.
2. Maruti Suzuki Stingray: Price – Rs 409999. Loan (90%) Rs 369000. EMI for 5 years is Rs 8396, for 3 years Rs 12434.
3. Toyota Innova: Price – Rs 992288. Loan (90%) Rs 893025. EMI for 5 years is Rs 20320, for 3 years Rs 30,090.
4. Renault Fluence: Price - Rs 1362550. Loan (90%) Rs 1226250. EMI for 5 years is Rs 27901, for 3 years Rs 41318.
Car price source: oncars.in. Calculations provided are indicative. Always confirm the interest rates and calculations before finalising a transaction
