Keep these things in mind before taking a car loan, otherwise there may be trouble!

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About 80% new car The sale is done through loan. Most of the banks and NBFCs (Non-Banking Financial Companies) attract consumers with discounts on car loan interest rates during the festive season. Also, the dealers also offer good cash discounts and freebies during this time. In such a situation, it would be necessary to know which loan offer would be better for us.

How to choose a car loan?

car selection

First and foremost, choose the car that suits your needs and fits within your stipulated budget. List at least 2 cars in the same price range so that you can compare them and choose the car with the best finance deal.

loan selection

After selecting the car, search for loans offered by various banks/finance companies. Here are a few things you should keep in mind while checking the loan schemes offered by various financial institutions:

special offer

Check with your bank whether they offer any scheme for existing customers. There are chances of getting a better deal if your bank has a good credit history.

eligibility

Captive car finance companies take loans only for their in-house brands. For example, Tata Motors Finance Limited will provide you a loan only if you buy a car from Tata Motors Limited. While banks offer loans to all brands but impose stringent eligibility criteria such as high level of minimum annual income.

loan duration

Fixing the loan tenure will definitely help you compare the loan schemes offered by various financial institutions. While the auto loan tenure offered by a car finance company can generally last up to 5 years (60 months), banks offer longer tenures of up to 7 years (84 months).

interest rate

The next deciding factor that can influence your choice of the best car loan deal is the interest rates. Banks usually apply a flat rate of interest to most customers while car finance companies offer rates on a preferential basis to maintain “loyalty” of customers. Car finance companies often offer loans on specific models or variants at cheaper rates. Some banks may give you a loan at a lower interest rate with a higher processing fee, while others may charge higher interest rates without processing fees at all. Calculate the final cost of the loan before considering either of the two options.

Processing Fee, Prepayment Charges and Late Fine

Other costs that play an important role in getting the best deal are processing fees, prepayment charges and late fines. Let us see how these charges can be among the deciding factors.

• processing fee: Depending on the loan amount, the processing fee across banks and car finance companies varies between Rs 1,020 to Rs 10,000 and Rs 3,400 to Rs 15,000 respectively.

• pre payment charge: Some banks do not have prepayment charges while some other banks do.

• late fine: Both banks and captive finance companies will penalize you for late payments.

What to do before finalizing the car loan

Be it a bank or a car finance company, the basic steps remain the same so first research the auto loans offered online. Visit an online finance portal like CarDekho Car Loan. Then compare the total cost of loan and EMI and evaluate your repayment capacity and thereafter, choose a lender that best suits your needs.

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