tep One: You have zeroed in on your dream car (that's the fun part).
Step Two: You have read and understood the various finance schemes that Get Ahead carried yesterday.
This article talks about Step Three (the worst part): Getting a good deal on your loan.
Our advice: Play ball with your car financier. You may end up being pleasantly surprised.
Here are some points to consider when trying to arrive at the best solution:
Part I: The ABC of car finance
1. Avoid the security deposit scheme as far as possible.
The most popular and straightforward scheme is the margin money scheme.
The financier pays an amount (say 80% of the cost of the car), you pay the rest (called a downpayment).
Then you pay up the 80% you owe your financier every month in the form of a fixed amount called the equated monthly installment (EMI).
The least popular, and one you must avoid, is the security deposit scheme.
Here, you give a security deposit to the financier. He invests it and pays you a rate of interest. He then pays for the car and you repay your loan in EMIs.
It would be wiser to invest your money elsewhere rather than give it to the financier for a pittance rate of interest.
Remember, the financier will never ask you to go in for this scheme unless he doubts your repayment capacity.
If you have no choice and are opting for the Security Deposit scheme, remember: The higher the deposit you place with him, the more you can bargain for a lower rate of interest on your loan.
2. How much money can you pay upfront?
If you do have money to spare right away, ask the financier to increase the downpayment.
Tell him you are willing to pay more now.
This will be good because you will have a smaller amount left to repay; and you can repay it much faster.
Once again, if you pay a substantial amount upfront (a huge downpayment), you can bargain for a lower interest rate.
If the upfront amount is more than you can afford, request the financier to increase the EMI or repayment tenure and decrease the upfront payment.
3. Customise your loan.
Let's say you have taken a three-year loan but have more cash at your disposal during the first year. In that case, ask for higher EMIs in the first year and lower ones after that.
Or even the reverse if you are expecting a raise down the road.
If you are expecting a bonus in a particular month over the next few years, ask for an increased EMI during only those months.
Remember, EMIs are always equal in amount. So if your EMI is Rs 1,000, it will be Rs 1,000 for all the months you are repaying the loan.
If you want it to be unequal, you will have to request your financier.
4. Work at repaying the loan quickly.
Unlike a home loan, you get no tax benefits with a car loan. Do not take the loan for too long a tenure. Try and repay it as soon as possible. The optimum repayment period from a financier's point of view is three years.
The longer the repayment period, the higher the interest rate.
If you want a better interest rate, lower the repayment tenure. But be prepared for higher EMIs.
A good scheme to opt for is the zero-interest rate scheme.
However, you will have to be prepared for either a higher downpayment or a very short repayment tenure -- six months to a year. Or maybe both.
If you can afford a high downpayment and a high EMI, do consider it. You will end up repaying your loan quicker with no rate of interest. But make sure he is not charging you very high processing fees (ask him what the processing fees are if you take the other schemes and compare).
5. Try and maintain a clear credit history.
You want to buy a high end car. But your financier is unsure of your repayment capacity.
He will first check your past credit history.
If you have not paid your credit card bills on time, it will go against you.
Ditto if you are paying just part of your credit card bill and keeping the balance for next month. It means you get into debt easily.
If you are already paying off another loan, he will check your repayment pattern.
Or he will look at your utility and phone bills and see if there are delayed payments and penalties.
This is mainly if he doubts your repayment capacity, or if you are going in for a very high end car and not raking in the big bucks to justify such extravagance.
6. Look for bargains from various players.
Some players like HDFC Bank offer a no-income documentation loan plan.
But you will only get a maximum of 60% of the car amount financed. And you will have to repay the loan within three years.
Your bank may give you the loan at a slightly cheaper rate of interest or fast approval with minimum documentation simply because you have an account with them.
Similarly, if you own a particular credit card, you may be entitled to a cheaper loan. Look into all these aspects when scouting for a loan partner.
Don't just go for what is offered. Work out the deal to your convenience.
Ultimately, it all boils down to how much cash you have with you at the moment and how much you are comfortable paying every month.
Bargain hard to get either a customised deal or a lower interest rate. Who knows? You may end up with both!
Part I: The ABC of car finance