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Car loans made easy. AUTO BILD INDIA walks the reader through the often mind boggling and lengthy process of acquiring a car loan, explaining the different documents required and the various fees involvedin the process.
Buying a new car is one of the larger investments that one makes in one's lifetime and most people have to resort to taking a loan to purchase one. For people who are not yet familiar with what paper work, bank charges, etc are required for getting one, we decided to present the information to you. So before choosing the bank go through the information given below. Ideally, it is better to take a car loan from PSU banks since their interest rates are lower compared to private banks, but it may take more time getting the loan processed and it also means a little more hassle.
Before you get a loan you need to figure out the eligibility criteria of the bank. People falling under categories of self-employed, professionals, salaried employees, high net worth individuals, people occupied with business, commerce or trade, senior citizens, directors of companies,farmers, pensioners, staff members, retired employees of banks(except compulsorily retired or dismissed employees) are all eligible. Loans are not encouraged for undivided Hindu families. For NRIs, loans are only offered jointly with permanent resident Indians, provided that the age of both the parties individually has not surpassed 65 years at the time of availing the finance.
Car loans are given based on the income of the individual, the car model, the borrower’s repayment track record with other existing loans. Generally it translates to about 2.5 to 3 times the annual salary for salaried professionals or six times the annual income for self-employed professionals as ascertained by income taxreturns of the previous three years. Banks finance 75-95 per cent of the ex-showroom price of a new car. If your income is not sufficient to get the loan amount you want, you could club your spouse’s or relative’s income with yours to get a higher loan amount. But remember you will still have to pay the EMI every month so decide on a comfortable amount you can manage. Though, some banks may have an upper ceiling for the loan mount, it differs depending upon who it is offered to. For corporates and companies the upper ceiling is Rs 1 crore, while for Indian nationals buying an indigenousvehicle its Rs 25 lakh, which is increased to Rs 75 lakh in cases where the vehicleis imported. For NRIs the limit is Rs 25 lakh.
The real cost of your car loan is apparent, only when you factor in other charges levied. For example, the processing fee or pre-payment fee in the case of a car loan will be different from that of a personal loan. Here is alist of all charges that are levied before a loan is disbursed and last through the course of the loan tenure.
The bank charges you an amount as a processing fee, which is deducted from your loan before disbursement. This is generally a percentage of the loan amount and varies from 0.1 to 1 per cent for car loans. For loans upto Rs 25,000 a one time fee of Rs 1,000 is charged while for amounts from Rs 25,000 to Rs 25 lakh the fee is 1.1 per cent with a maximum limit of Rs 5,000 and a minimum of Rs 1,500. For loans of over Rs 25 lakh, the fee is 0.25 per cent which should not exceed Rs 15,000.
Most banks charge you a penalty when you wish to clear your loan before the end of the tenure. This pre-payment penalty is levied to offset the income the bank loses in terms of interest lost. Ide-ally, you should go for the bank that
If you miss your monthly EMI deadline, the bank charges a late payment fee between 1 and 2 per cent as penalty along with the next EMI paid or with the EMI that is paid after the due date has passed.
If your account does not have enough balance and the post dated cheque given to the bank is dishonoured, the bank charges anything from Rs 200 to Rs 450 as penalty.
Banks levy documentation charges towards the verification of the various documents you provide towards the loan application and range from Rs 250 to Rs 500.
Car loans require only three documents – your identity proof, residence proof, and income proof. Identity proof can be either passport, driver’s licence, voter ID, or PAN card. For residence proof, either a passport, driver’s licence, ration card, or voter ID will work if you reside at the same place as stated in these. If you stay at a different place from the one mentioned on your ration card, passport or voter ID, you can produce utility bills (electricity or telephone) of the place as proof of residence. Income proof required for salaried people is salary slip, Form 16 for the previous financial year, and bank statements for the previous 6 months. Self-employed people need to provide their IT returns for the previous two years.
Before you drive off in that new car of yours, there are just a few more papers that need to be signed. These in- clude the power of attorney, which allows the dealer to go to the RTO and register the vehicle in your name.
No one likes to prolong one's debt. Rather one would always look at avenues to shorten the debt period. For car loans, the only way to do this is through pre-payment. However be aware that most banks would have a pre-payment penalty clause. Try and take the loan from a bank that charges the least in this regard. Sometimes you may also find a bank that allows you to pre-pay but only upto a limit. Choose to borrow from such a bank as this will allow you a good way of reducing your debt burden, even if only to an extent.
| The following are the details of Bank of India's easy to avail car financing scheme for Booking and Registration of the Car |
Margin money |
| This is the money which the loan procurer must produce himself. |
Processing fees(any one of the following) |
Loan tenure (any one of the following)This is the length of time in which the loan is supposed to be repaid back to the bank starting from the time of disbursement. Also known as the tenure. For new vehiclesFor Pre-Owned Vehicles |
Loan ceilingBanks normally have limits to the amount of loan which can normally be sanctioned, depending upon which category the applicant falls into. |
Research All information regarding car finance schemes is available on the internet, through the bank's and financial firm's website. Cross check and compare between the available schemes. Car showrooms will also have tie-ups with financial institutions and can get you in touch with them.
The borrower needs to work out the cheapest loan based on the tenure and loan amount. Several banks offer a combination of fixed and floating rate loans. Some also have a variable rate for each year based on tenure.
Experts advise customers to avoid floating rate auto loans. There are lenders offering attractive rates at a fixed price for the entire tenure. This is better than a floating rate loan, which would subject the borrower to the volatility of interest rate movements.
A large down payment will not only ensure low EMIs but will also fetch you a lower interest
Always cast an eye over every minute detail in the loan document. Banks try to add hidden costs which can be missed if not properly observed
It is preferable that you write down the important terms of the loans to help you compare it with other available schemes
One can always take an insurance over the car loan to prevent any loss due to an untoward and unforeseen incident.
