The festive season in India is a time of joy, celebration, and an opportunity to bring home that long-cherished dream car. Diwali and Dhanteras, in particular, witness a surge in big-ticket purchases like cars, thanks to the attractive offers presented by both banks and non-banking finance companies (NBFCs). These offers often include lower interest rates on car loans, waiver of processing fees, cashback, and more. However, choosing the right car loan is a crucial decision that requires careful consideration. In this article, we’ll explore the factors to keep in mind when comparing car loans during the Diwali season.
Which Factors to Check When Comparing Car Loans This Diwali?
One of the first decisions you’ll face when seeking a car loan is how you plan to finance it. Many car buyers opt for financing through the dealer, who often has tie-ups with specific lenders. While this can be a convenient choice, it’s essential to be aware of potential biases. Dealers may steer customers toward lenders that provide them with higher commissions. To ensure you get the best deal, consider comparing the dealer’s offer with those from other banks or online marketplaces. This way, you may discover more favorable terms and lower interest rates elsewhere.
The interest rate is one of the most critical factors to examine when comparing car loans. Lenders typically offer interest rates in two variations: fixed or floating. Fixed interest rates offer certainty in interest payments, making them a preferable choice for those who want to avoid fluctuations. In contrast, floating rates may be more suitable if you anticipate interest rates decreasing in the future. Be sure to understand the type of interest rate being offered and how it aligns with your financial goals.
Flat vs. Reducing Interest Rate:
Another point to consider is whether the lender quotes a flat or reducing interest rate. Flat rates calculate interest on the full loan amount throughout the tenure, while reducing rates charge interest only on the outstanding principal. It’s crucial not to mistake a flat rate for a reducing rate, as they have different implications for the total interest outgo. Understanding the interest rate structure can help you make an informed decision.
|Name of Lender||Interest Rate (%)||EMI (Rs)||Loan Amount (5 lakh)|
|Union Bank of India||8.75 – 10.50||10,319 – 10,747||Nil till 15 November 2023|
|Punjab National Bank||8.75 – 9.60||10,319 – 10,525||0.25% (Rs. 1,000 – Rs. 1,500)|
|Bank of Baroda||8.70 – 12.10||10,307 – 11,148||Up to Rs 500|
|Canara Bank||8.70 – 11.95||10,307 – 11,110||Nil till 31 December 2023|
|Bank of India||8.75 – 10.75||10,319 – 10,809||Nil|
|UCO Bank||8.45 – 10.55||10,246 – 10,759||Nil|
|State Bank of India||8.65 – 9.70||10,294 – 10,550||Nil|
|IDBI Bank||8.75 – 9.55||10,319 – 10,513||Rs 2,500|
|Bank of Maharashtra*||8.70 – 13.00||10,307 – 11,377||Nil|
|Indian Overseas Bank**||8.85 onwards||10,343 onwards||0.50% (Rs 500 – Rs. 5,000)|
|ICICI Bank||8.95 onwards||10,367 onwards||Rs. 999 – Rs. 8,500|
|HDFC Bank||8.75 onwards||10,319 onwards||0.50% (Rs. 3,500 – Rs. 8,000)|
|Karnataka Bank||8.95 – 11.30||10,367 – 10,946||0.60% (Rs. 3,000 – Rs. 11,000)|
|Federal Bank||8.85 onwards||10,343 onwards||Rs. 2,000 – Rs. 4,500|
|Punjab and Sind Bank***||8.85 – 10.25||10,343 – 10,685||0.25% (Rs. 1,000 – Rs. 15,000)|
|South Indian Bank||8.75 onwards||10,319 onwards||1% (Max: Rs. 10,000)|
|IDFC First Bank||9.00 – 13.50||10,379 – 11,505||Up to 3.5%|
|City Union Bank||14.25 – 14.75||11,699 – 11,829||1.25% (Min: Rs. 1,000)|
Charges and Fees:
Beyond the interest rate, potential borrowers should closely examine the charges and fees associated with the car loan. These can include:
A. Processing Fees: Most lenders require a processing fee, typically around 0.5% of the loan amount, plus applicable taxes. Some banks may waive this fee, so be sure to inquire about any such offers.
B. Documentation Charges: In addition to processing fees, some lenders may impose documentation charges, typically ranging from Rs. 500 to Rs. 700 per loan basis.
C. Part Prepayment and Foreclosure Charges: Making part prepayments or paying off the loan before its original term might incur additional costs. Lenders may impose a prepayment penalty, often in the range of 3-6% of the outstanding principal amount, along with applicable taxes. It’s essential to check whether any special terms or conditions apply to prepayments and foreclosures, as some lenders may waive such charges or set specific conditions.
Loan on Ex-Showroom or On-Road Price:
Understanding the difference between the ex-showroom price and the on-road price is vital when comparing car loans. While lenders typically offer financing based on the ex-showroom price, the on-road price includes additional costs like registration, road tax, and insurance. Lenders often finance up to 85% of the on-road price, so be aware of this variation in loan-to-value ratios between the two price points.
Choosing the Right Tenure:
Car loans come with a range of repayment periods, usually spanning from 12 to 84 months. Longer tenures result in lower monthly EMIs but can also lead to higher overall interest expenses. It’s essential to consider your financial situation and goals when selecting the loan tenure. While longer tenures may offer lower EMIs, they also increase the total interest outgo, so weigh the advantages and disadvantages carefully.