CAR LOAN: WHAT ALL I NEED TO KNOW

CAR LOAN- IMPORTANT POINTS

Cars have become a thing of daily use these days. It has also become much easier to buy a car as banks & NBFCs are ever-ready to offer car loan right inside the showroom. All you need to have is a satisfactory credit score & margin money. In some cases, banks finance up to 100% of ex-showroom cases under tie-up with the leading car manufactures. Therefore, cars have become quite affordable now.

Following expenses are considered while financing a car:

Car Ex-showroom CostRegistration costInsuranceMandatory  Accessories

The rate of interest on car loans varies from bank to bank. But now they are being offered between a range of 7.50% to 10.50% depending upon your FI (financing institution) & your credit score, sometimes. FIs also levy processing charges on the car loan which ranges from 0.5% to 2%. Extent of finance may depend upon the customer’s profile like- job, credit score, bank statement & car model. Tenor of a car loan is a maximum of 84 months. However, some banks may allow only up to 60 months as per their lending policy.

Let’s say you have purchased a car with a loan of Rs 1.00 Lakh. Following table will give you some more information on the interest cost:

Loan AmountRoIPeriodEMITotal InterestTotal Amount
1.00 Lakh9%84160935148135418
1.00 Lakh9%60207624550124550
1.00 Lakh9%48248919448119448

TABLE SHOWING INTEREST COMPARISON OF CAR LOAN FOR DIFFERENT REPAYMENT TENOR

From the above table, we understand that if we pay Rs. 880/- extra Per lakh & reduce tenor to 4 Yrs., we save around Rs 15970/- per lakh which means, we will save an amount of Rs 95820/- on a car loan of Rs 6.00 Lakh. Hence, you may consider it as a part of the financial plan to workout calculation like this with the help of an EMI Calculator and save big.

Generally, following documents are required for a car loan:

  1. Identity Proof
  2. Address Proof
  3. Income Proof viz- ITR for 2 years or 6 Month Salary Slip.
  4. Quotation
  5. Any other document as per bank policy.

MY TWO SUGGESTIONS:

  1. ALWAYS PURCHASE A CAR THAT YOU CAN AFFORD TO PAY OFF IN 4 YEARS.
  2. CHECK BANK’S TERMS & CONDITIONS OF SANCTION LIKE – PROCESSING FEE, ROI, REPAYMENT TENOR ETC.

For further assistance, you may also write to us and we will be happy to help.

@PLANMONEYonline / enquiry.planmoneyonline@gmail.com

Author: Admin

2 thoughts on “CAR LOAN: WHAT ALL I NEED TO KNOW

  1. Gone through your article, very good approach to make the customers understand for taking right steps before purchasing a car with borrowed money ! I am planning to buy a car after resumption of market as the market is closed due to Covid 19.
    Please also write Is car an assets or liability ! I generally feel, car is a liability ! But in lockdown situation, when i am bound to attend my duty as i am working in service sector which comes under essential service sector, own car is much needed when there is no public transport is available for you and/or taking lift on other colleague’s vehicle is equally risk prone of Corona virous ! I am badly feeling carless fellow 😢
    Staysafe. All the very best.

    1. Hi Prabhakar Singh
      Thanks for your appreciation.!
      Now coming to your question, in my opinion, assets are only those which contribute towards the income in our cash flow statement. If buying a car reduces your expenditure on commuting, then it is surely an asset that will impact your cash flow positively. However, a car is an item that gets depreciated 25% right at the moment, you drive it out of the showroom. Besides, if you buy it on a loan, you will also have to bear interest. Therefore, it is you who can decide it better whether it will be an asset or liability also considering the fact that it will demand maintenance & there might also be some unnecessary fuel expenses. Mr Robert Kiyosaki, famous author wrote that middle-class people often end up buying liabilities which they think are assets. So, sit with your budget, draw your cash flow and find out if a car will be an asset or a liability for you.

      Many thanks for writing to us. Hope it helps.!
      Regards

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