Do you need that car loan? Here are pointers on things to look out for before applying

Oct 05 2013, 10:56 IST
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A car loan is, however, a double-edged sword. A car loan is, however, a double-edged sword.
SummaryIt may seem like you're easing burden by paying in small chunks, but you could end up paying a lot more.

transactions that are submitted to the bureau every month by banks and credit card companies. Based on these records, they generate a CIR (Credit Information Report) via which a credit score is generated. Generally, a credit score of more than 700 is considered good, and makes a strong case for getting the car loan sanctioned.

Rate of interest

One of the most important factors to consider before applying for a car loan from a particular bank is the rate of interest, as it can decide your instalment amount and the total amount you will be paying above your borrowed sum at the end of the loan tenure. Interest rate charges differ according to the duration of the loan and the type of interest scheme chosen. This can be classified into two types—fixed and floating. Fixed interest rates remain constant during the tenure of the loan, whereas a floating interest rate changes according to the trends in the market. To play it safe, opt for a fixed interest rate loan.

Public sector banks generally offer lower rates of interest to the tune of 10.1-12%, with loan tenures of seven years maximum. On the other hand, private banks offer loans at a higher rate of interest of around 12.5-15%, with the advantage of having less documentation required and better service quality. Most of the loans offered nowadays are of the reducing balance type. In this scheme, as you pay the EMIs, your principal amount decreases and interest is levied on the remaining reduced amount and not the entire principal sum.

It’s also worth noting that having a long-standing relationship with a particular bank can get you good offers. Car loans are also customised according to car models; popular ones generally get the best loan offers as compared to slow selling models. Get all the options on the table before selecting the right one that meets your requirements and expectations.

Package deals

A convenient option is to take a car loan from the purchased car’s dealer as they have bank representatives or tie-ups with banks to offer lucrative deals as part of a package that includes loans, insurance waivers/discounts and car accessories. Dealers earn a commission on the items they sell, but sometimes, a little higher interest rate or insurance package maybe negated by the accessories offered free with the car. It’s better to evaluate the options from the dealer’s side, as well as directly from the bank or

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