Buying a car? Make the most of auto loans

There is good news for car manufacturers in India - car sales are on a rise! Sales figures show an impressive growth from the beginning of this year with 32 per cent rise in January, 33 per cent and 20 per cent increase respectively in February and March of this year.

As compared to the same period last year, the sales figures for April, 2010 have shown a positive growth for most car companies.

The total car sales over all segments have increased by 39 per cent in the month of April, 2010.

Sales for Maruti Suzuki have increased by 23 per cent as compared to the sales figures for April, 2009. Hyundai and Toyota have also seen a steep increase in their sales with a 28.10 per cent and 77.7 per cent rise in their sales respectively.

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This increase can be attributed to many factors like:

• Better economy. The Indian economy is falling back on track and people are much more positive as compared to last year. This mindset has encouraged customers to get into big purchases like cars.
• Introduction of new models by auto makers. For example, Volkwagen's latest hatchback model 'Polo' already had 7,300 bookings in April, 2010.
• Sales in the small car segment have increased and are leading the sales charts. To give an example, Ford Motor Company's 'Figo' sold 7,226 numbers in April this year.
• Good deals on loans and interest rates by financial institutions are also encouraging people to get into the car market.

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Attractive car loan schemes

Banks and other financial institutions are offering attractive interest rates on car loans, both new car and old car, to encourage customers to take loans from them.

This in turn is boosting the sales of cars in the country. Most financial institutions offer interest rates within the range of 8.0 percent to 13.0 percent, for a loan term of 1 year to 5 years, on new cars.

For example, ICICI Bank is offering a floating interest rate of 9.5 per cent to 13.0 per cent, SBI has a floating interest rate of 11.25 per cent and fixed rate of 8.0 per cent on its EZEE car loan scheme, HDFC Bank offers a fixed interest rate of 10.50 per cent etc.

The interest rates on loans for purchasing used cars are generally higher. For example, SBI charges interest rate of 14.75-15.00 per cent for used car loans for a 1-5 years term.

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Interest rate and loan eligibility

The interest rate offered by banks depends upon several factors like the term of loan, amount of loan, type of interest rate - fixed or floating, whether it is a new car or an old one, credibility of the borrower, age and income of the borrower etc.

Therefore, one has to negotiate to get the best deal. Also, it is advisable to look into the entire package deal when deciding which offer is the best.

Dealers offer customers attractive schemes such as free car accessories like music system, mats etc. One may also get a cash discount. These factors should be considered while calculating the effective interest rate on the loan.

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Repaying your car loan

Lenders require repayment of loan in the form of monthly installments.

The interest is computed using the compound method.

For example, assuming you take a loan for Rs 200,000 for a period of 5 years at a fixed interest rate of 10.0 per cent, your EMI would come to Rs 4250 per month.

The repayment schedule will look like this: