Auto loan

billubakra

Young Padawan
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Dec 18, 2012
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Hi,

A colleague of mine is looking to go for a car loan to buy a Vw vento. He's getting these types of loans-

Government banks
8.70%-8.80% rate in different banks. Sbi's rate is 8.80% File charges around 800-1000 No prepayment or preclosure charges. Interest rate is floating, might be increased or decreased as per Rbi's policy. Banks call it reducing rate though. How is it calculated BTW?

Private banks
7.70%-7.80% rate. File charges around 4500-5500 if preclosed before 25 months then 2% penalty on principal amount. Interest rate is fixed.

Private loan agencies (suggested by sales guy, probably because he's getting a share)
7.40% interest rate. File charges 4500-5000. If preclosed before 25 months then 2% penalty on principal amount. Interest rate is fixed. The concerned said that the auto loan will be from hdfc. But hdfc's rate is like 7.80% when asked he said we have additional powers so rate is reduced. He's not a hdfc employee but he said that all papers where we will sign will be from hdfc, he's just a middleman. He showed few loan approved papers to him according to which he got loans of 10 people approved in 2 days from the back.

VW finance
7.84% interest rate. File charges 6500. If preclosed before 25 months then 2% penalty on principal amount. Interest rate is fixed. They were the least interested people as per him.

Which loan should he select and why? Any hidden charges in private sector?

Thanks
 

Ronnie012

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Jul 10, 2011
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You can have a go at govt bank's.Interest rates will vary depending on your credit score or few other factors.But you can expect it to be around 8.7 to 9.2%(will differ from bank to bank)
 
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billubakra

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You can have a go at govt bank's.Interest rates will vary depending on your credit score or few other factors.But you can expect it to be around 8.7 to 9.2%(will differ from bank to bank)
Credit score has nothing to do with the rates afaik. Government banks rates depends upon the rates decided by RBI hence it will keep on changing, though it is transparent than private banks but my friend doesn't want to pay say 11% interest if it increases in the future.
 

Stormbringer

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My Dad(A retired Banker) says govt banks do give loan on fixed rate. That's what most ppl opt for. I would prefer govt banks over private agencies anyday. Try some other banks other than SBI. And don't trust Sales guys, they are more concerned about their profit than your friend who end of the day is the one paying back the loan.
 
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billubakra

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My Dad(A retired Banker) says govt banks do give loan on fixed rate. That's what most ppl opt for. I would prefer govt banks over private agencies anyday. Try some other banks other than SBI. And don't trust Sales guys, they are more concerned about their profit than your friend who end of the day is the one paying back the loan.
Actually dear he has the repayment schedule from four different public sector banks and all are charging .5 more or less than the other but they are all giving floating or reducing rate of interest. I agree private banks and private agencies suck but today I met a guy who took an auto loan from pnb for 5 years. When he decided to pay the full amount after two years he was told that his interest has been cleared and he just needs to pay the principal. Apparently his first installment consisted of only interest and not the principal amount.
 
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whitestar_999

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Make sure to read all Terms & Conditions even if it takes a day before signing anything.Also try to make as much down payment as possible because in the long run a bigger loan is always more costlier than a smaller loan for the same duration.
 
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billubakra

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Make sure to read all Terms & Conditions even if it takes a day before signing anything.Also try to make as much down payment as possible because in the long run a bigger loan is always more costlier than a smaller loan for the same duration.
That private agency loan is so tempting. I told him to go with public sector banks for a piece of mind.
 

Stormbringer

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Actually dear he has the repayment schedule from four different public sector banks and all are charging .5 more or less than the other but they are all giving floating or reducing rate of interest. I agree private banks and private agencies suck but today I met a guy who took an auto loan from pnb for 5 years. When he decided to pay the full amount after two years he was told that his interest has been cleared and he just needs to pay the principal. Apparently his first installment consisted of only interest and not the principal amount.
Can't comment on the PNB loan as I don't details of it. Your should have read the terms and conditions before taking the loan. Fixed rate loans are available. You need to approach some more public sector banks. Also look at loans which has no penalty for preclosure.
 

sling-shot

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In case of private loans, one has to pay the exact amount which will be auto debited from your account on the exact date. You cannot miss even a single payment. As far as prepayment is concerned, one can do it after a certain date but it has to be done one shot.

Government banks generally allow you to pay any amount more than the EMI anyday of the month. Some will setup auto debit. For eg. Union Bank sets a date for your EMI, but you can pay on any date earlier or later. You can pay any amount higher than the fixed EMI. In case you have paid say 3 EMI value in excess, you won't be bothered if you fail to pay 3 EMIs in future.

Because of this convenience, I always would advise public sector bank loans. Nowadays they give upto 90% finance and 7 years tenure. (Though I do not recommend taking more than 75% and 5 years tenure to be paid down in 3 years)
 
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billubakra

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In case of private loans, one has to pay the exact amount which will be auto debited from your account on the exact date. You cannot miss even a single payment. As far as prepayment is concerned, one can do it after a certain date but it has to be done one shot.

Government banks generally allow you to pay any amount more than the EMI anyday of the month. Some will setup auto debit. For eg. Union Bank sets a date for your EMI, but you can pay on any date earlier or later. You can pay any amount higher than the fixed EMI. In case you have paid say 3 EMI value in excess, you won't be bothered if you fail to pay 3 EMIs in future.

Because of this convenience, I always would advise public sector bank loans. Nowadays they give upto 90% finance and 7 years tenure. (Though I do not recommend taking more than 75% and 5 years tenure to be paid down in 3 years)
Thanks. Can you please explain the bold part, especially the tenure one?
 

sling-shot

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We tend to get excited when buying a new car and end up overextending our budget if finance is available. There could be any unforeseen circumstances in future that require more money. If we are already committed to a high EMI, it becomes difficult.

Having at least 25% of final price shows that we can afford that car to some extent with the present income. This prevents us from counting the chicken before the eggs hatch. Also keeping a reasonable tenure but aiming to finish it early conditions us to reduce expenses of unnecessary nature and direct that to reducing the debt burden.

It still depends on individual's preference. People have a cushion in the form of ancestral property or something can afford to take bigger risks/loans.
 
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billubakra

Young Padawan
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Messages
4,163
We tend to get excited when buying a new car and end up overextending our budget if finance is available. There could be any unforeseen circumstances in future that require more money. If we are already committed to a high EMI, it becomes difficult.

Having at least 25% of final price shows that we can afford that car to some extent with the present income. This prevents us from counting the chicken before the eggs hatch. Also keeping a reasonable tenure but aiming to finish it early conditions us to reduce expenses of unnecessary nature and direct that to reducing the debt burden.

It still depends on individual's preference. People have a cushion in the form of ancestral property or something can afford to take bigger risks/loans.
His target is to foreclose the loan within 24-30 months. So, for many months should he apply for the same, 36 or 48?
 

sling-shot

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If there is no significant difference in EMI, prefer shorter 3 year term. Otherwise pick 4 years and pay additional each month. The second option would end up making you pay more but give you breathing room for emergencies.
 
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