Financing types

	Financing types
	There are many standard vehicle loan types. Here are few:- Margin Money Schemes Security Deposit Schemes Advance EMI Schemes Leasing
	Margin money schemes
	This is the most straightforward scheme of them all. For instance, if a car costs Rs. 1 lakh, a typical scheme would require you to pay at least 10% up front, and you would get a loan of Rs. 90,000. The Loan to Value (LTV) ratio is 90% in this case. The interest rate quoted will be on this Rs. 90,000. Thus if the rate quoted is 16% for 12 installments, the EMI would be Rs. 8,166. The interest rate is charged on a monthly basis.
	Security Deposit Schemes
	This is a variation of the Margin Money Scheme. In this, the company claims to give a loan of 100%, but asks for, say, 10% of the amount in advance, which it will return at the end of the loan period. In effect, you are still getting a loan of 90%. But the reason that you are being "shown" a lower rate is that the designer is making interest on your deposit for the period of the loan, when your money is lying with him. He uses that money to offset the amount that he is charging less from you. Some security deposit schemes offer interest on the deposit that you pay. As long as this rate is lower than the rate that you are paying in a normal margin money scheme, the designer can reduce the price of the loan. Suppose you had to put in a deposit of Rs. 10,000 in the above case, on which 14% is being offered. The scheme lets you borrow Rs. 1 lakh, instead of only Rs. 90,000. In effect, he is borrowing the additional Rs. 10,000 from you at 14%, and is lending you that same money at 16%. So he's making extra money, which he can afford to use to reduce the 16%. Thus, he is using your own money to give you a lower rate.
	EMI and Hire Purchase
	EMI and Hire Purchase are the same, the only difference being that under Hire Purchase, the size of the installment was known to the hirer and interest was calculated in loan balances. Under the modern EMI, a much smaller amount is adjusted against the installment in repayment of the principal and much higher against interest liability. But the hirer does not know the adjustment and the lifetime cost and is happier to pay a fixed sum, an affordable EMI for the period committed. In both the cases, the vehicle is in the vehicle owner's possession, but the legal ownership rests with the financier. Under hire- purchase, it is automatically transferred to the buyer as soon as the last installment is paid, while under lease, a separate transaction of buying the lease expired car has to be made. Depreciation is available to the buyer under hire purchase and to the financier under lease.
	Leasing
	Leasing is another form of financing vehicles. The buyer pays a fully tax deductible fixed monthly rental - there is no need to segregate monthly installment and interest and there is no security deposit. Decide on your vehicle, and go for it. There is nothing to think of, except, of course, paying those installments on time!