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.

insurance company to ascertain the best deal before taking the plunge.

Avoid penalties

An important factor to consider when choosing a bank loan is foreclosure, which, simply put, is the closing of a loan earlier than agreed by paying off the remaining debt. On a recent ruling by the Reserve Bank of India, a verdict was passed wherein prepayment (making a payment thats more than your regular EMI, hence reducing the principal amount that has to be paid back) penalties for loans that have been purchased on a floating rate of interest will be waived. If a foreclosure of the loan is on the cards, be prepared for high foreclosure. A penalty for the same is waived if the next loan is purchased from the same bank after the closure of the earlier one. Some banks also do not allow you to foreclose before a certain period.

Other charges

Bank loans come with other charges like processing fees and late payment fees. Some banks charge a flat processing fee while others charge a percentage of your loan amount as processing fees. A late payment charge, generally to the tune of 2%, is also levied on the EMIs. These charges, although minor in number, should be evaluated as part of the decision making process. As an example, on an EMI of R10,000, and with a 2% penalty fee charged, your overall EMI for that particular month would be R10,200.

Its clear that theres a fair amount you should be aware of before considering a car loan. Different banks offer varying loan rates in an attempt to lure customers, so its important to consider these aspects before zeroing in on a finance scheme.

Its important to remember that CIBIL maintains records of your credit history, based on which a credit score is generated. This will determine how credit-worthy you are, and the better the score, the better your chances are of getting a loan amount required by you approved.

Whats more, a long-standing relationship with a bank can also go a long way in helping you get a finance scheme that suits your needs the best, with little documentation required.

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