Hunting for the best deal

Advertisements in newspapers are promoting loans for the Tata Nano BS IV variant — on-road price of Rs 2.03 lakh (Nano CX, solid paint) and Rs 2.07 lakh (metallic paint) — with an equated monthly instalment (EMI) of Rs 1,892 for seven years. The down payment is only Rs 21,424.

The low amount may make the deal look cheap. But the tenure is higher than in other auto loans on offer. Typically, auto loans are for four-five years, both from banks and non-banking finance companies (NBFCs).

Car finance
Those with irregular incomes will get easier deals from NBFCs such as Tata Motors Finance and Mahindra Finance. These companies have tie-ups with their group dealerships. For instance, Mahindra Finance offers 75-80 per cent of the on-road price at 11 per cent for three years for small cars. Also, ICICI Bank is offering car loans at 11.25 per cent for small cars such as Maruti Alto and Hyundai Santro.

“NBFCs are advantageous for businessmen, or those with irregular incomes, as banks prefer salaried individuals. We don’t ask for documents. Instead, we assess the income flow and generate a financial statement for individuals,” says Ramesh Iyer, managing director, Mahindra Finance.

These companies carry out an audit of your expenses vis-a-vis your income to decide the loan liability that you may be comfortable with. Say you are a freelance graphic designer earning Rs 30,000 a project. They will assess the number of projects you bag each month or quarter and deduct the expenses to calculate your total income.

However, NBFCs ask for a higher margin, a minimum of 15-20 per cent on the ex-showroom price (cost of car minus registration and insurance costs) of new vehicles. In comparison, most banks offer loans for up to 90 per cent, a margin of up to 10 per cent.

State Bank of India’s Ezee Car Loan Scheme is for cars up to Rs 5 lakh. The interest rate is eight per cent for the first year, 10 per cent for second and third years, 11.25 per cent for fourth and fifth years and 11.50 per cent for the last two years.

“We only facilitate availability of loans, preferably from banks they have their account in (otherwise documentation increases). We don’t give any discount on the loan rate, that’s the bank’s discretion,” says a senior executive of an authorised dealership for Hyundai Motors. For instance, you can get up to Rs 25,000 discount on Santro CLS’ (1,100 cc) on-road price of Rs 4.30 lakh, or a cash back of Rs 4,000 on the i10 Era 1.1’s (1100 cc) on-road price of Rs 4.55 lakh. These discounts are higher during the festive season, adds the executive.

Therefore, if a dealer says he will get you a lower rate of interest on a car loan, it’s not true. The reason is these dealers do not provide the loan. They have tie-ups with banks, which sell their car loan schemes.

Consumer durable finance
However, when you opt for instalments on purchase of consumer durables, there is a marked difference in rates offered by banks and consumer durables finance companies such as Bajaj Finserv or Sriram Capital.

There are three ways of repaying the cost of consumer durables on instalments. You can take a personal loan from a bank, which levies an interest of 14-25 per cent, depending on your credit profile. Or, you may opt for one of the following:

• Retailers and credit card companies which have a tie-up for giving loans
• A tie-up between retailers and consumer durables financiers

The credit card-linked EMI option requires the buyer to swipe his card. The payment is converted into instalments. Thereafter, every month, the instalment is added to the credit card bill. Most of these payments are at zero-per cent interest. But the buyer may have to pay a processing fee of Rs 999, irrespective of the cost of the purchase.

“But if you default, there will be an interest rate of 40 per cent on the outstanding amount,” says Manoj Kumar, CEO, eZone. However, this varies from bank to bank and depends on your credit profile.

Similarly, loans from consumer durables finance companies come at zero cost. Buyers have to pay 20-25 per cent of the cost of the purchase as a down payment.