In this world of rapid digitization, things have literally come on to the fingertips, isn't it folks. A click of the mouse and you get to see what you want to. And it is also prevalent in a car loan, which is offered by banks and non-banking finance companies at a specific interest rate for a specific period of time. The lender count is huge in number, and thus it may become difficult to compare if you are not friends with the online tools. The online comparison allows you to grab the right offer in terms of important aspects like loan amount, interest rate, processing fee, prepayment charges, loan tenure, interest rate type, down payment liability and others. These aspects can be either game makers or breakers. So, compare those for a bumpy-free ride on the road. A brief note on each of the aspects is demonstrated below for you to see at.
Interest Rate- The foremost thing to look at here is the car loan interest rate being charged by the lenders on your car loan. Greater the interest rate more will be the outflow on your loan and vice-versa. The EMI amount surges when the interest rate is on the higher side, thereby reducing your savings and pinching your pocket at the same time. So, choose a lender that offers car loan at a lower interest rate if not the lowest to give your pocket the much-needed room to fight against the inflation.
The interest rate on a car loan ranges from 8.15%-15% for new cars and 14%-21% per annum for old cars. Plus, the interest rate mechanisms applied by the banks can also bring a difference in the loan repayments. Car loans are offered on both floating and fixed interest rates. With the floating rates, the lending rate changes based on the variation in market conditions. The fixed rate implies that the rate of interest would remain the same throughout the loan tenure.
Example- A difference of 2% may sound less to you. But when a loan that can be granted for as long as 7 years, the resulting difference in the overall payment can be in the range of 50,000-60,000 over the loan tenure. Plus, a car loan is not a productive debt unlike a home loan. Means, the value of the car depreciates sharply and can come down by 10% in a time period of 6-8 months. The constant depreciation reduces the value of your car sharply and with higher EMIs resulting from the higher interest rates, the pain can be felt even more. So, negotiate with your lender to lower the interest rate to the maximum extent possible.
Loan Amount- All things stand null and void if the loan amount offered is sharply lower than what you require to buy your favourite car. In that case, you may have to buy a car that is more affordable and not what you like to bring at your home. Another option would be to borrow the remaining amount from friends or relatives, who can possibly deny you any help, leaving you on the grounds of uncertainty.
The maximum loan amount that can be granted by the bank equals to 80%-90% of the on-road price, which actually is a sum of ex-showroom price, RTO, insurance and accessories, if any. As far as old cars are concerned, expect a loan amount of upto 60%-80% of the valuation amount coming your way.
Loan Tenure- Lenders offer a new car loan and used car loan for a maximum period of 7 years and 5 years, respectively. There is a catch here to unfold. Yes, with a shorter tenure, the amount of EMI can jump but your overall interest repayments can come down. The longer tenure, on the other hand, keeps the EMI lower and interest outgo higher. Therefore, if you can afford a slightly higher EMI amount, it is advisable for you to opt for a shorter tenure to save on the interest outflow. The longer tenure will be the way forward if you can't pay higher EMI month-on-month.
Processing Fee & Prepayment Charges
While the processing fee is charged by the lender to process the loan, the prepayment charges come to the fore when you prepay the loan. The processing fee can be a specific amount or a certain percentage of the loan amount. No prepayment is allowed between 6 months to a year from the date of loan disbursement. Usually, the charges are calculated at 3%-6% of the principal outstanding along with the applicable service taxes. Therefore, it requires you to check these costs before signing the car loan deal with a lender.
I hope you have got an idea of how critical the comparison of car loans can be to your financial cause. So, compare car loans and negotiate with the lender to offer you maximum loan amount at a lower interest rate for a memorable experience.
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