Taking a car loan? What you need to know

You want to buy a new car but are not sure how to get the best loan deal. Nor do you know how much you will be charged for the loan.

Will you get a loan for the entire cost of the car or you need to contribute some amount? What are the documents you need to have in hand before applying for a loan?

Will it work out cheaper if you go for an overdraft facility or for an installment loan?

In a chat with Get Ahead readers on June 19, personal finance expert Harsh Roongta answered these and several other queries related to car loans.

For those of you who missed the chat, here is Part I of the transcript.

Part II --  Why an overdraft loan is better than installment loan

bipin asked, Can we bargain in a car loan? Like interest rate, loan amount (100 per cent), etc. What are the standard rates for small cars?

Harsh Roongta answers, Of course you can bargain. Though 100 per cent finance (by which I presume you mean the ex-showroom cost plus insurance plus registration cost) is difficult to get, you can definitely bargain on interest rates and upfront discounts.

seetharamank asked, I would like to go for a new Maruti 800. I need a loan of full amount. I am salaried and residing in Chennai. Please help.

Harsh Roongta answers, Normally you should be able to get around 85-90 per cent of the on-road cost (which includes the cost of the car plus octroi or local taxes levied plus insurance in different states) as a loan. If you have a credit card, you should swipe it for the down payment and take an EMI for the remaining amount.

In this manner, you may be able to get 100 per cent financing. Another way could be to provide some other security to the bank (such as shares, MF units, etc) so that the bank can fund even the balance 10 per cent.

Arvind Jha asked, Hi Harsh, recently my motorcycle got stolen. Now I want to buy a car. Please sugest the best deal; also since I am still a learner-driver, will it be ok if I go for a new car?

Harsh Roongta answers, Which car is suitable for you will depend on your needs and preferences such as where you will drive, what use you will put the car to, how many kilometres you will drive, the number of passengers you will normally have, self-driven versus driver-driven, maintenance costs, your preferences on looks and colours, etc. So it is rather difficult to provide a straight answer to your question.

mamu asked, Sir, how do I know if the loan that I am getting for my vehicle is the best deal that I am getting? Any tips for this? Also, what are the documents required for vehicle loan processing? Please reply.

Harsh Roongta answers, Please read this article on 7 steps to get the best car loan. http://www.apnaloan.com/articles/car-loan-india/car_loan_best_rates.html.

The documents required for a car loan are income documents (Form 16/ ITR, bank statements, salary slips, identity documents etc.)

naveen asked, For a car loan, is a nationalised bank or a private bank better for the loan deal? What are the penalties for both the banks in case we want to liquidate the loan early?

Harsh Roongta answers, Based on current rates, the absolute interest charged by public sector banks is slightly lower. However given the fact that discounts are linked to loans in most cases, you might get a better deal from a private sector bank if you are a savvy negotiator.

sundariyer asked, I seek your advise as how to evaluate how an EMI per lakh is composed of and how to evaluate if discount offered in EMI per lakh is genuine. My daughter's employer is eligible for 1 per cent discount.

Harsh Roongta answers, You can use the interest rate calculator on this link: http://www.apnaloan.com/loan-advice-india/emi.html

VIPUL asked, SIR WHAT IS THE AVERAGE RATE OF INTEREST ON 90 PER CENT PAYMENET FOR NORMAL TERM FOR A CAR?

Harsh Roongta answers, Across cars, you should be able to get a rack rate of around 12-13 per cent for a car loan. I must hasten to add that the actual cost to you can be much lower as discounts from the dealer/ DSA and the manufacturer can push down the rates significantly, depending on the bank and the manufacturer and the make of the car.

ankur2 asked, Hi Harsh, greetings of the day. I am planning to buy SX4. Want to ask 2 things: which bank is best for car loan and why?

Harsh Roongta answers, There is no such things as a best bank. If that were so all other banks would need to close down. Each bank has its own strengths and suitability for a consumer. Your best bet is to scout around in the market.

shashi asked, I want to buy Honda Civic with Rs 10 lakhs loan. What are the negotiable interest rates you are suggesting to buy this car.

Harsh Roongta answers, Please check http://www.apnaloan.com/articles/car-loan-india/car_loan_best_rates.html

Rajnishp asked, Hello Harsh, I am purchasing a Santro 2001 model. I have applied to ICICI Bank for a used car loan and the bank is offering me the same at 16 per cent rate of interest. Is there a beter deal that we can get from some other banks?

Harsh Roongta answers, You should reconfirm by shopping around.

sharad asked, Hello Mr Roongta. I have a few questions for you. 

1. What should be the best interest rate on which a car loan should be taken in this period and with what discounts?

2. Is it possible to take a car loan on floating interest basis?

3. Most of the financers are insisting on a prepayment penalty of upto 5 per cent. Is it possible to get a car loan with pre-payment option without any penalty?

Harsh Roongta answers, On interest rates: Please read the earlier portion of this chat.

On prepayment: No bank is likely to give a loan without prepayment penalty. If this is a big issue for you, I would suggest you go in for a overdraft facility rather than an installment loan so that you do not have to pay interest when you have surplus funds.

The OD facility is normally slightly expensive to begin with, but if you are likely to have surplus funds in the future, this will be a cost effective solution for you.