Planning to take auto loan? At 8.45%, SBI offers the lowest rate

However, check with manufacturers' captive lenders for offers during the festive season

In an attempt to enthuse potential car buyers and lift the sagging fortunes of the automobile sector, State Bank of India (SBI) has reduced the auto loan rate to 8.45 per cent - the lowest since 2006. From September, the country's largest bank is offering auto loans at 8.7 per cent. But if the borrower applies on the bank's digital platform such as YONO, another 25-basis point discount is being offered.
 
The rate on the digital platform is lower by 55 basis points, compared to the earlier rate. The bank said the loan would be a fixed-rate loan, which will have "no escalation in interest rate".  "The rates fell after the bank benchmarked some of its retail loans to the repo rate. As auto sales are down, the car loan business, too, has been slow. Interest rates are also lowered to kick-start consumption as the festive season is around the corner," said Ranjit Punja, co-founder, CreditMantri.
 
If a person is buying a car that has an on-road price of around Rs 8 lakh, SBI will offer a loan of Rs 7.2 lakh (up to 90 per cent of the car value). In the earlier rates (9 per cent), the equated monthly instalment (EMI) of the borrower for a five-year loan would come to Rs 14,946, and the total interest outgo would be Rs 1,76,761. At 8.7 per cent interest rate, the EMI will be lower by Rs 105, and the total interest outgo will reduce by Rs 6,277. But if the borrower applies on the digital platform, the EMI will reduce by Rs 191 and the interest outgo by Rs 11,487. “The reduction in interest rates work for those sitting on the fence and have been postponing their purchases. Otherwise, the difference is not significant as these are short-tenured loans,” says Punja.
 

SBI does have the lowest interest rate on an auto loan in the market, but banking experts say a buyer should first check the captive finance companies that are present at the dealers' showroom. A manufacturer may be willing to throw in freebies to earn a commission from the captive lender and sweeten the deal.
 
"The car loans applicants should first negotiate the car price before accepting any offers. The dealer may try to keep higher margins by luring buyers with lower interest rates," said Naveen Kukreja, CEO and co-founder, Paisabazaar.com. A borrower should, therefore, first evaluate the impact on its total outgo, and whether a dealer's freebie is worth considering.
 
Private lenders may also have pre-payment and foreclosure charges. Consider these aspects before signing up with them and also compare the processing fee.
 
SBI, for example, is not charging any processing fee during the festival offer. Also, avoid lenders if they are charging an advance EMI. A car is a depreciating asset. Taking a bigger loan may not be the best thing to do. Try your best to go for a short-period loan. The shorter the tenure, the lower is the interest outgo.