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Home > Auto Loans > Auto Loans Car Financing Guide
Auto Loans Car Financing Guide |
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Buying a new car is no less important than buying a home and in this highly treacherous world, you have to be extra smart to be able to smell a rat and make the right deal before finalizing an auto loan for buying the car that you have always longed for. Given below are a few tips for you if you wish to go in for financing your car with an auto loan. You should not be misled by the claims of some financers that they provide 100% car financing. You will find that they will ask you for advance EMIs or a deposit and if you do your calculations correctly, you will find that effectively you will be paying more than what you will be receiving. Moreover, lenders who claim that the interest rates on the auto loans are low might be giving you only half the picture. If you consider all the factors such as processing fees and method of EMI calculation, you might find that the effective interest rate would be much higher than what you had bargained for. There are some lenders who try to allure consumers with flat interest rates. If you calculate the effective rate, you will find that this will be higher on the basis of cash flows rather than on the normal method of annual reducing balance and monthly reducing balance. The reason for this is that principal doesn't get adjusted (read reduced) with EMI payments unlike normal methods (annual, monthly reducing balance etc). So you end up paying more interest, besides the auto loans amount. Before signing a loan agreement, you must be crystal clear in your mind about all the implications of the auto loan agreement. You must read the fine print and find out about the hypothecation of your vehicle to the financier, the loan agreement that you will have to sign, and the stamp charges that you will have to pay. It is important to check up the pre-payment charges which are applicable if you wish to pre-pay a part of the loan as and when surplus money is available. Such pre-payments can result in savings as outstanding principal amount would stand reduced after such payments. You can work out the resultant savings if you know the pre-payment charges of auto loans so that you can take the right decision. You should also find out whether you have the penchant for taking risks. Do you invest often in stock markets or do you prefer to invest in FDs? If you want to invest in a security deposit scheme, it would be necessary to find the answer to the above question. Moreover, you would not get more than 12%-15% p.a. for the money invested under this scheme. If you are a high risk taker, there will be an opportunity cost involved for not earning returns the stock market way. The depreciation factor is also important as you can only claim depreciation if you take finance in the form of auto loans or hire purchase as a sole proprietor and not as an individual. The financier can claim the depreciation if you lease the vehicle. To understand the interest and principal contribution of EMIs at different points of time, you should find out about the amortization schedule. The timing of the payment of the monthly installment on your auto loans is very important as your salary might get credited at a later date than the date at which the payment has to be made. You should also look for special discounts as you can always negotiate the final interest rate/EMI on your auto loans. You might be able to get some special benefits also. You should opt for longer duration auto loans if higher EMIs payments prove to be difficult for you. You can get auto loans for 7 years from some banks although the normal financing period is from 1-5 years. The tenure also depends on the type of car you buy. |
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