Bankroll Your Wheels

This is perhaps the best time to buy a car. Not only is there a wide choice, but you can get cheap finance too. Many finance companies have slashed their interest rates from 17-19 per cent to 13 -16.5 per cent. Besides this, banks and NBFCs (non banking finance companies) are willing to finance up to 90 per cent of the value of the car.

But the interest rate is not the only factor that should influence your purchase, because there are some hidden costs that come along with the loan.

First, check whether the bank is charging a monthly reducing balance, a daily reducing balance or has levied a flat rate? A flat rate is obviously the costliest. For the monthly reducing balance, for example, the amount you pay as interest in the Equated Monthly Installment (EMI) comes down every month. EMIs are calculated on the basis of the diminishing principal amount. The Hongkong bank is the only bank that charges interest on a daily reducing balance. Essentially it works out the same as monthly reducing balance except when you make a pre-payment. But when you make a pre-payment you are often charged a penalty. Hongkong bank allows up to 25 per cent pre-payment every year without any penalty. Most finance companies and banks charge a pre-payment penalty between 2 and 3 per cent. Ford Credit, Kotak Mahindra slaps a penalty of 3 per cent if you want to pay back in the first two years and 2 per cent thereafter.

 

HDFC, Hongkong bank, Standard Chartered (Stanchart), ICICI and Citibank lower the rate by 0.25 to 1 per cent if you are an account holder or possess a credit card issued by the bank.

Next watch out for the service charges levied. While at ICICI you pay no processing fee, others like Corporation Bank levy Rs 500 for loans up to Rs 2 lakh and Rs 1000 for bigger loans.

Most financiers pay up to 90 per cent of the car's value. The balance has to be paid as down payment, also called the margin amount. The re-sale value of the car also determines how much loan the bank is willing to give. Thus, for cars with high resale value, like the Maruti 800, Maruti Zen, the financiers demand only 10 per cent of its value as margin amount. For premium cars and those with lower re-sale value like the Contessa Classic, Ambassador, the bank collects a bigger margin amount of 20-30 per cent. Few banks like ANZ Grindlays categorically mentions that a Tata car purchase gets only 75 per cent of its value. They, however, make an exception if you buy an Indica.

It is not necessary that the bank will give you 90 per cent of the value of the car merely because it's printed so in the brochure. The bank checks your income statement and IT returns for the last two years to decide on the loan amount. Besides these basic documents some also ask for proof of residence and the driving license.

Few banks like Stanchart limit the loan amount to Rs 4 lakh if you are a salaried individual. This limit is raised to Rs 15 lakh in case of self-employed individuals, proprietorship and partnership firms. Others want a third party guarantor. Corporation Bank will not sanction the loan until a third party is ready to stand as the guarantor.

Stanchart and ICICI have launched a privilege scheme for those who have already taken a loan from any of the car financing institutions earlier, and have a good repayment record. These individuals can walk into any of the branches and have a loan issued without having to give proof of income.

The other scheme whereby you don't have to get into the trouble of gathering documents is Stanchart's 70-30 scheme. No proof of income is asked for if you take a loan for just 70 per cent of the value of the car with the remaining 30 per cent being paid up front.

So what are you waiting for, get behind the wheels and drive out into the sunset.

Cheque List

----------------------------------------------------------------

Interest rate (%) Type Tenure finance

limit

----------------------------------------------------------------

NBFC

Alpic Finance 13.5-14.5 Flat rate 1-3 yrs 85%

Ford Credit 14.75-15.75 Monthly 1-5 yrs 85%

Kotak Mahindra 14.75-15.75 Monthly 1-5 yrs 90%

Primus

Fiat Sundaram 16% Monthly 1-5 yrs 80%

BANK

Standard Chartered 14.75-15.5 Monthly 1-5 yrs 90%

HSBC 17 Daily 1-5 yrs 90%

ANZ Grindlays 16.5 Monthly 1-4 yrs 90%

Citibank 12-16 Monthly 1-5 yrs 90%

Corporation Bank 14.5 plus tax Monthly 1-4 yrs Rs 8 lakh

HDFC Bank 16.5-17.5 Monthly 1-5 yrs 90%

ICICI Bank 16.55 Monthly 1-5 yrs 80-90%

----------------------------------------------------------------