FAQ

	How do I get an auto loan?
	Tap various dealers for the various finance schemes floating in the market. You can choose from margin money schemes, advance EMI's schemes and deposit payment schemes. Normally margin money schemes offer the best terms, but ultimately effective interest rate of the loan is what actually matters. This method provides a common platform for comparison of different schemes by discounting on the basis of cash flows.
	What are the stages involved in availing a loan?
	The prescribed forms are available with the Mandal Revenue Officer of the respective Mandal.
		Application
		Processing
		Documentation
		Sanctioning of the loan
		Disbursement
	How much loan can I get?
	The size of the loan will depend upon the cost of the vehicle, the type (standard or premium) and the percentage financing you are offered. If you are buying a new car, you can get financing up to 90% financing. Some finance agencies have a limit beyond which they do not offer loans. Keep this in mind. Also most of the financiers have different terms for different models. Generally, the percentage of finance given on car models is decided on the basis of second hand market. Models like Maruti 800 have a huge second hand market. In case the buyer defaults, the finance company can get a higher resale value for the car. This makes the financier comfortable enough to give higher percentage finance.
	What role does credit profile play in taking a car loan?
	Credit Profile is one of the most important factors that will be considered before you get the loan. Your credit profile normally reveals if you intend to pay back the loan. Age, occupation, income, financials, previous credit history play a vital role in determining your credit profile.
	Is it necessary to have an account with the bank from which you take a loan?
	There’s no compulsion for you to have a prior relationship with the financier. Banks normally have no problem in giving auto financing to people who do not have an account with them because they are protected by the lien that they hold on your car. However, look out for certain privileges that you may enjoy because of being an account holder/customer of the said bank.
	Do I need to pledge any thing or give collateral to get a car loan?
	No, there’s no necessity for any collateral. The bank will only need you to hypothecate the car in its name. Most financiers will insist on an endorsement being made in the Registration Certificate (RC) book of the vehicle. This will be cancelled after you repay the loan.
	How long will it take to process the loan?
	The loans are generally approved within 24 hours of submission of complete documentation. This time frame may vary banks to bank. You need to submit requisite documents like salary slip, tax returns, proof of residence, bank statements etc. If you decide to take a loan from the nationalised bank, it will take at least one week for the loan to get processed because there is heavy paperwork involved.
	Is verbal commitment final?
	No, absolutely not. Unless and until you sign on the dotted line you have an option to back out of the negotiation process any time you want. You are under no obligation to go through with the deal if you are uncomfortable with any of the terms or if you are getting a better deal elsewhere.
	Who can be a guarantor?
	A guarantor can be any relative, or a director in case of private limited company. The relative is defined as Father, Mother (including Step mother), son (including step son), son’s wife, daughter (including step daughter), son’s son, son’s wife, son’s daughter, daughter’s daughter, daughter’s husband, brother (including step brother), brother’s wife, sister (including step sister), wife/husband and sister’s husband. Boy what that confusing! Well in short, almost all the near and dear ones you know could be the guarantors. However for consideration of these relatives as guarantors for the loan they should comply with the age and other norms of the company.
	What is the extent of liability of the co-applicant and the guarantor?
	A co-applicant has as much responsibility as the primary applicant and is equally liable to the finance company from which the loan is taken. The guarantor on the other hand promises to pay the bank in case the applicant(s) default on the payment. Both the co-applicant and the guarantor are liable for re-payment and the financing agency has the right to collect from either or them.
	Is the eligibility and documentation similar for all the financiers?
	This is something all financiers keep common norms on — almost 90% of the financiers have similar eligibility criteria. For e.g. age should be between 21-58, the candidate applying for the loan must have a minimum annual income of Rs 60,000 (this may vary slightly with different loan providers). Usually the documentation asked for is latest salary slip if you are working, latest audited balance sheet and profit and loss account if you are self employed, proof of residence, signature verification, Form 16, bank statement, credit card statement if any etc.
	Can I get finance for insurance and registration?
	Most financiers do not cover Insurance and registration. The ex-showroom price is considered which does not cover insurance and registration charges.
	How do I repay my loan?
	Normally, the loan is repaid through Equal Monthly Installment or EMI’s. The EMI consists of the contribution you make to partly pay off the principle and partly the interest that is due. There is a facility for back loading of the EMI whereby EMIs payments are lower initially and increase as and when the loaner’s income increases.
	How do I pay the Equated Monthly Installment (EMI)?
	Normally, all financiers ask for Post Dated Cheques (PDC) for the entire repayment period or at least for the first two years. But nationalised banks may require that you have an account with them for at least 6 months or so and your installment will be directly debited to your account. If you don’t have an account, open one. Sometimes, the installment is directly taken from your salary if there is an agreement between the financier and your employer.
	How is the interest calculated?
	The interest is usually charged on a flat rate or on a reducing balance which can be either daily, monthly, quarterly or annually.
	What is a rack rate and a floor rate?
	The Rack Rate is the rate that the financier tells you about, at the start of the negotiation or the one that is normally mentioned in their brochures. This rate is arrived at after taking into account the deductions from the rack rate. Normally, you may be entitled to the deductions because of your negotiating skills itself or because you satisfy some of their conditions. These deductions vary from scheme to scheme and financier to financier. They may be in the form of reduction in the interest rate because you hold the credit card of that financier, your good track record of paying back loans, or a host of other reasons.
	Over what period can I pay off my loan?
	The tenure of the loan could range from one to seven years for new cars and from one to five years for used cars. Higher the tenure, lower is the EMI. but the total interest outflow is higher.
	What documents do I need to submit after the loan amount is disbursed?
	You can keep the original car documents, registration certificate, insurance policy, tax papers with you. But you need to submit a photocopy of the same to the bank.
	What happens after I have paid the last equated monthly installment?
	After the last payment is made get the lien of the bank on your car cancelled. The bank will issue a NOC certificate and Form 35 to cancel the hypothecation on the car. The RTO requires an NOC and Form 35 for up-dating the RTC book. Also the insurance company requires an NOC to make the necessary changes on the policy taken out.
	Is EMI a proper measure for comparing the deals of various players?
	Not really. There are other charges like processing fees, advance EMI's if applicable, other up-front payments (stamp charges), registration charges, insurance which need to be factored in before comparing the various deals.
	Can I reduce or change my EMI?
	No the EMI cannot be altered once you have signed the agreement with the loan provider. However you can pre-pay the loan amount in which case there will be some penalty.
	How is annual reducing balance different from monthly reducing balance?
	In case of an annual reducing basis, the outstanding principal gets adjusted once a year while in the monthly reducing balance basis, the principal gets adjusted on a monthly basis. Hence, more of your principal gets repaid in monthly reducing basis than in annual basis. However, there are banks, which calculate EMI's on a daily or a quarterly basis.
	Is floating rate of interest a better option than fixed rate of interest?
	In case of falling interest rates, a loan taken on floating rate of interest is a better option but when the interest rates are rising, opt for a fixed rate loan. If you go for a fixed rate loan, you will know in advance what your EMI's will be. This will help you in your financial budgeting. If you opt for a floating rate, you may not be able to budget properly.
	How can I increase the amount of loan that I can take?
	You can increase the amount of loan sanctioned by clubbing your spouse’s income. The spouse then becomes the co-applicant.
	Can I pay off my car loan before the tenure is up?
	Yes you can pre-pay your loan amount. But there may be certain rules regarding the pre-payment that your financier may have. You may have to pay a small penalty, which is normally, a percentage of the loan amount that remains outstanding. In some cases, you may not be allowed to partly pre-pay the loan amount, i.e. you can pre-pay only in full. Some financiers do not penalise you if you pre-pay. Take this factor into consideration when you choose a financier because if you can get a loan later on at a lower rate of interest this penalty could offset whatever you could save through the interest rate differential.
	Can I change the tenure and amount of loan taken after the loan amount has been disbursed?
	Yes you can change the tenure and amount of the loan. But this would imply that the interest rate and the amount of installment will change accordingly.
	What happens if my cheque bounces?
	Besides affecting your credit profile adversely, legal proceedings could be initiated against you since it is a criminal offence.
	Can I delay my installments?
	It is better not to delay your installments since it will adversely affect your credit profile and make further borrowing costly.
	What happens if the car meets with an accident?
	The first step is to inform the insurance company who sends a surveyor to assess the extent of damage. Your claim is then processed and paid directly to the financier unless you have taken an NOC from the financier. You are normally given a NOC if you are regular in your payments.

Legal Documents

Legal Documents
	You should make sure that registration certificate (RC Book), insurance certificate, pollution under control (PUC) certificate and service book are all in order. RTO Tax: Don't forget to check if the one-time RTO tax has been paid by the previous owner.
	Registration Certificate
	Make sure that the document is registered in your State and the State's name is mentioned in the registration paper. Information with regard to engine number, chassis number, manufacturing date, etc are found in the RC book. Always check the engine and chassis number of the vehicle. Make sure there are no missing pages in the RC book.
	Insurance Certificate
	It is also important to know whether the car has a third party insurance or a comprehensive insurance. Ensure the premium has been paid regularly. Never forget to get the insurance certificate in your name.
	Road Tax
	Also get your name registered in the road tax papers.
	Service Book
	From this book you can get the full information with regard to the servicing the car has undergone so far. Informing authorities: Submit all details pertaining to the model of car, registration number, engine and chassis numbers, the name and address of its previous owner to the RTO or the insurance company. This will help you know the illegal precedents, if any, involving the car.
	Take a hard look before you sign
	Car financing does involve lots of paper work. But the entire process need not be Greek to you. You can and should understand the important steps in the process. 1.You should get to know what commercial terms like loan amount, interest rate, installment amount, installment due date, loan duration, up front charges, advance installment stand for. 2.Also take interest to understand the amortisation schedule -- conveying the break up of interest and principal. 3.Look for any clause that may suggest that payment be made without any notice. 4.You should also get to know the terms of prepayment premium and if partial prepayment is possible. 5.If you are making your payments through PDCs (Post dated cheques), you may have to undertake not to close the account or refrain the financier from depositing your cheque. Watch out for these conditions. 6.Look for details of hypothecation of the car to the financier. 7.You should also look for conditions with regard to the maintenance of the car, payment of all taxes and the insurance cover. 8.Take a look at the clause explaining how any insurance claim money should be spent in case the car is damaged in an accident. 9.Find out whether there is a clause stipulating that the vehicle be used only for lawful purposes and for non-commercial use. And if so, get know the conditions in this regard. 10.Make sure you get to know all the conditions in the clause dealing with paying installments irrespective of the condition of the vehicle. 11.Carefully read the power of attorney paper you require to sign in favour of the financier. 12.Watch out for Clauses dealing with defaults including the one that authorises the financier to declare a default. 13.A careful reading of the clauses containing the actions that can be taken by the financier in the event of default is a must. 14.Read the demand promissory note for the loan amount. 15.Take a look at the RTO forms. Also, watch out for the following details before inking the deal 1. Pre-Closure Charges 2. Hidden costs 3. Installment Due Dates 4. Amortisation Schedule Hidden Costs: Companies may slap service charges, documentation charges, processing charges on unsuspecting customers. This may increase the cost of the loan more than what it appears on first look. Keep an eye on taxes like VAT (Value Added Tax), TOT (Turnover Tax) you need to pay. The taxes may also jack up the cost of the loan.

Car finance - Make a smart deal

Car finance - Make a smart deal
	Over the last five years, the dream of owning a car has been coming true more and more easily for the country's burgeoning middle-class. Among the factors most responsible for this rapid motorisation is the availability of relatively attractive financing options. The change again has been made possible by the new-found alliance between the car-maker, the dealer and the financier. The fall in interest rates and the juggling of margins between the trio has enabled the car buyer to bargain for lower monthly repayments. The recently announced alliances by Maruti Udyog Ltd (MUL), the country's largest car manufacturer, with State Bank of India and its associate banks is another attempt at taking vehicle financing to the masses. The tie-ups also gel with the company's plans to increase its focus on the rural market, where the demand for Maruti's entry-level car could increase with the availability of cheaper financing
	Retail financing booms
	In the urban market, the steep rise in the number of passenger vehicles purchased through retail financing is a clear indicator of the increasingly easier availability and popular acceptance of this genre of car shopping. From a share of about 45 per cent of all cars sold five to six years back, to about 75 per cent now, car finance is the driving force behind the sales numbers that most automobile companies boast of today. In fact, of the remaining 25 per cent of car sales not funded through retail financing, a major chunk would be institutional sales and only a small portion outright purchases by individuals. Further, the falling interest rate regime and the increasing competition in the car finance segment have led to a substantial fall in the cost of funding a car purchase. From an effective cost (including processing fees, etc.) of about 24 per cent on a monthly reducing balance basis six years ago, rates have crashed to about 8-11 per cent now depending on the car model. If the current falling interest rate regime continues, the day may not be far when they match car financing rates in the US, where it is 4-6.5 per cent, on reducing balance basis.
	Getting a good deal
	So, with the myriad car financing options available, how do potential car buyers ensure that they get a good deal? What precautions are to be taken? What are the new models? And what are the tips to remember that will make that loan cheaper? First, the obvious start to the car purchase process is the selection of the car itself (which model and variant). The issue is dealt with in the accompanying article. After the car is selected, the next step is to calculate the amount of a car loan that needs to be taken based on the buyer's current savings kitty and his repayment potential. (See Table for EMI calculator and rates.) Among the banks and companies that are major players in retail car financing are ICICI Bank, HDFC Bank, State Bank of India, ABN Amro Bank, Kotak Mahindra Primus, Standard Chartered Bank, Sundaram Finance and Ford Credit. In addition to these financiers, car manufacturers also have preferred financing arrangements with certain banks and non-banking finance companies (NBFCs). For example, Maruti Finance has a preferred financing tie-up with nine other outfits, including Countrywide and Citicorp. Preferred financiers may offer more competitive interest rates than the others for specific models of the manufacturer with whom they have tie-ups.
	Newer options galore
	Until now, the plain-vanilla traditional retail financing option has been the only one available to buyers looking for a loan. Here, the buyer either pays an amount as margin money upfront and part-finances the car being purchased or, in some cases, takes a loan for the full amount payable for the car. The loan so taken is repaid over a fixed term at a pre-fixed interest rate, with the total outstanding, including interest charge, payable in equated monthly instalments (EMIs). Among the newer financing models that have come up are: Advance EMIs: Under this model, the buyer can take a loan for a longer duration and in many cases at a lower interest rate. However, this would be applicable and beneficial to customers who have the ability to pay a few EMIs in advance. This would effectively reduce the tenure of the loan and at the same time provide the benefit of a lower interest rate. This may be better than using the excess cash to pay upfront margin money, as the tenure and size of the loan in many cases determines the competitiveness of the interest rate offered. Security deposit model: A variation on this could also be the security deposit model, where the customer deposits his cash on hand in a fixed deposit with the financier, instead of paying it to the dealer as margin money. The fixed deposit will usually fetch a higher interest rate than a similar bank term deposit. But whether the deposit will offer a rate higher than the interest rate being charged for the car loan will depend on the model and the buyer's bargaining position. Maruti's Versa (above) and Hyundai's Santro Xing... Options for the upwardly mobile. Balloon payment: A newer model that is yet to gain widespread acceptance is the `End-of-term balloon' payment model. Under this model, the car buyer who is taking the loan gets to pay a lower EMI. This is either because the notional resale value of the car at the end of the loan term is not factored into the total loan amount or because a pre-fixed amount determined at the time of entering the loan agreement is expected to be paid at the end of term. In both the cases, the financier will reserve the right to retain the car if the contracted amount is not paid to complete the dues under the loan. As a result, in this model, the car buyer has to pay the balance `balloon' amount (in most cases the expected market/ resale value of the car) at the end of the loan tenure to get the vehicle transferred in his name. In comparison to traditional retail financing, the total interest paid out under the `balloon' payment model will invariably be higher. However, the `balloon' payment being due towards the end of the loan tenure allows for a smaller monthly instalment and so, is more pocket friendly especially for car buyers who are hoping to upgrade to a higher segment. For example, if the car costs Rs 4.5 lakh and the resale value at the end of a five-year tenure is expected to be Rs 2 lakh, the buyer can take a loan for Rs 2.5 lakh under the `balloon payment' scheme and opt to pay the balance (notional resale value) as a lumpsum at the end of the loan term. The balloon payment model has not caught on among most banks and NBFCs because of the inherent unpredictability of the used car market. However, with the used car market becoming more organised and with the entry of manufacturers themselves into this segment, there is a likelihood of the balloon payment becoming more popular. Lease and refinancing: A variation of the balloon payment model, which may also be introduced in the country after a further maturing of the car finance segment, is the retail lease financing of the car. Under the terms of the retail lease model, the car buyer has to pay the financier an EMI that consists of a monthly lease rent, finance charges and other charges, if any. At the end of the term, the car buyer has the option of paying the resale value and transferring ownership of the vehicle, or selling the vehicle and paying the financier's pre-assessed value of the car, or just paying a fixed charge for the financier to dispose of the vehicle. Refinancing has not gathered pace in the car finance market. Given the short tenures and steep default charges, it is unlikely to be introduced in the near future. However, under the balloon payment scheme and the lease option, finance companies and banks are more likely to come up with a refinancing option for the large end-of-term payment. SuperSavings tie-up: The other new financing model that is being tried by a few multinational banks and private sector banks is to tie a current account or a super-savings account to the loan account. Such tying up enables the car buyer to route any excess funds from the SB or current account to the loan account, thereby reducing the outstandings with the financier. Financing options abound. But apart from the basic financing models on offer, car buyers need to check out quite a few finer aspects of financing.
	Check these out too
	Apart from these financing options, the other points that need to be kept in mind by the potential car buyer are: A three-year loan term may be too short if the buyer's repayment capacity is not high. A seven-year term may be too long in the current falling interest rate scenario. In most cases, the five-year term loan will be ideal. Look out for hidden charges that may not be highlighted by the financier upfront, such as documentation charges, processing fees, etc. Interest rates and the EMI payable are always negotiable. Some banks also tailor the EMI according to the car buyer's repayment capacity. Most financiers have monthly targets to be met. As a result, they will be more willing to squeeze their margins and pass it on to the customer in the form of lower interest rates and EMIs towards the end of the month.

DOCUMENTATION

DOCUMENTATION
	For salaried individuals:
	Proof of Identity:- Passport copy, PAN Card, Voters Id car, driving licence( Laminated, Recent , Legible) Income Proof:- Latest salary slip with form 16. Address Proof:- Ration card/Driving licence/Voters card/passport copy/telephone bill/ electricity bill/Life insurance policy PAN Card. Bank Statement:- Not mandatory
	For self employed:
	Proof of Identity:- Passport copy, PAN Card, Voters Id car, driving licence( Laminated, Recent , Legible) Income Proof:- Latest ITR Address Proof:- Ration card/Driving licence/Voters card/passport copy/telephone bill/ electricity bill/Life insurance policy PAN Card. Bank Statement:- Waived for small cars, for mid - sized and premium cars if income Is greater than Rs 1.5 lacs then bank statement requirement can be waived.
	For partnership firms:
	Proof of Identity:- NA Income Proof:- Audited balance sheet, Profit & loss Account for latest two years and the latest 2 years IT returns of the company Address Proof:- Telephone Bill/Electricity Bill/Shop & Establishment Act certificate/SSI registered certificate/Sales Tax certificate Bank Statement:- Waived for small cars, for mid - sized and premium cars if income Is greater than Rs 1.5 lacs then bank statement requirement can be waived.
	For private limited company:
	Proof of Identity:- NA Income Proof:- Audited balance sheet, Profit & loss Account for latest two years and the latest 2 years IT returns of the company Address Proof:- Telephone Bill/Electricity Bill/Shop & Establishment Act certificate/SSI registered certificate/Sales Tax certificate Bank Statement:- NA
	For public limited company:
	Proof of Identity:- NA Income Proof:- Audited balance sheet, Profit & loss Account for latest two years Address Proof:- Telephone Bill/Electricity Bill/Shop & Establishment Act certificate/SSI registered certificate/Sales Tax certificate Bank Statement:- NA
	ELIGIBILITY
	For salaried individuals:
	Minimum age of Applicant: 21 years Maximum age of Applicant at loan maturity: 58 years Minimum employment: 1 year in current employment and minimum 2 years of employment Minimum Annual Income: Rs 100000 net annual income Telephone: Must at residence
	For self employed:
	Minimum age of Applicant: 21 years Maximum age of Applicant at loan maturity: 65 years Minimum employment: Atleast 3 years in business Minimum Annual Income: Net profit Rs. 60000 p.a for standard cars and Rs.100000 p a for mid-sized and premium cars Telephone: Must at residence
	For partnership firms:
	Minimum Income: Net profit Rs. 60000 p.a for standard cars and Rs.100000 p a for mid-sized and premium cars Minimum turnover: Turnover Rs 4.5 lacs Telephone: One phone at least at business and at residence of the loan executing partner
	For private limited company:
	Minimum Income: Net profit Rs. 60000 p.a for standard cars and Rs.100000 p a for mid-sized and premium cars Minimum turnover: Turnover Rs 4.5 lacs Telephone: One phone at least at business premises
	For public limited company:
	Minimum Income: Net profit Rs. 60000 p.a for standard cars and Rs.100000 p a for mid-sized and premium cars Minimum turnover: Turnover Rs 4.5 lacs

Find out how much loan you can really take
	Although some financiers have schemes that give 100% car financing, they will either take advance EMIs or a deposit from you. So you never really get what they promise you. And you don’t need to be a Noble laureate to understand that effectively you shell out some money from your pocket. So where does the question of 100% finance arise? Ask the supposedly shrewd marketers of loan products this question, if you see a point.
	Look beyond the interest factor
	Don't rush in to take a car loan just because interest rates offered on such loans are low. Effective interest rate would be a better parameter to judge a loan. It factors all the costs involved in a loan like processing fees and method of EMI calculation. Avoid getting lured by lowly quoted "flat interest rates". Again calculate the effective rate of the scheme, which is on the basis of cash flows. The effective interest rate actually turns out to be higher on this method of calculation than the normal methods (Annual reducing balance, Monthly reducing balance etc).
	The explanation to 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 loan amount.
	Find out if the Bank is offering a step-up option
	This option is suitable for persons who can’t afford shelling out larger amounts as monthly payments initially. But, expect to pay higher amounts with a salary hike, promotions etc.
	Processing Fees
	Take into account the processing fees, which usually range between 1% to 3 %, while making the decision to take a loan.
	Read the fine print
	Find out in detail 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. Also try and get hold of a copy of the loan Agreement and read the fine print. Get a clear picture of what a loan agreement is all about.
	Find out about the pre-payment charges
	that are applicable on payment of loans ahead of schedule. This is useful as one would like to prepay some part of the loan as and when one gets money. This could translate into savings, as outstanding principal amount would stand reduced after such payments. These features help in your decision making during tie-breakers.
	Find out your risk appetite
	Are you the types who invest often in stock markets? Or you prefer the FDs? This self-analysis could be important if you are contemplating going for a security deposit scheme. As you would get no more than 12-15%p.a for the money you have deposited under this scheme. So here, there is an opportunity cost involved for not earning returns the stock market way if you are high risk taker.
	Check the depreciation factor.
	If you take financing in the form of loan or hire purchase you get to claim depreciation (You can claim these benefits only if you buy as a Sole Proprietor and not as an individual). If you lease the vehicle, the financier gets to claim the depreciation. Find out about the amortisation schedule to get a hang of the interest and principal contribution of EMIs at different points of time.
	When do you pay the monthly installment
	The timing of paying the installment is important as your salary might get credited at a later date than the date at which the payment has to be made. Then you have to provide a cushion by having a reasonable amount of money on your savings account.
	Look for longer duration
	if higher EMIs payments bother you. Go for a longer tenure loan. Usually car financing is available from 1 to 5 years. However there are some banks which have schemes which offer loans for 7 years. Hunt for them. Generally, the tenure is dependent on the type of car you wish to purchase.
	Thumb rule is :
	A good car market encourages banks to give longer tenure of loans.
	Do I want the loan?
	Well if you have all the money buy the car from your own funds, you shouldn’t be reading this section. But if you have idle money lying in your savings account, earning a paltry interest of 4.5%, try reducing your loan amount by that amount. If you cannot pay for the car but still dream of owning one, a loan will certainly help. And if you take it, the downside is that you have to pay your installments till the time the loan is repaid.
	Let’s do some number crunching
	Generally you will get a loan value equivalent to 80% of the cars invoice price. So lets say if the car costs Rs. 2.5 lakhs, the amount of finance that you get is for Rs 2 lakhs. Assuming duration of the loan is 5 years and interest rate equal to 16%p.a. You will be shelling out Rs. 4842 under the monthly reducing balance method. Again under the flat rate of 16% p.a. the EMI works out to Rs (2,00,000 * .16 * 5 + 2,00,000) / 60 = Rs 6000. This is because the principal never gets adjusted in a flat rate basis of calculation. Morale of the story is basis of calculation is of utmost importance and work out the numbers yourself before going for a loan.
	Watch out for the Deposit schemes
	Some finance companies reduce the EMI and the interest rate under such type of schemes. Here the financier is effectively borrowing from you the amount equivalent to the deposit and lending the same to you . The catch is he making money from this process, which he adjusts in the interest rates or EMIs. If he pays 12% interest on the deposit and charges you 17% on the loan, you end up paying 5% interest on your own money. It is better not to go for this scheme, and to use the deposit amount as a down payment and thereby reduce the total loan amount, interest outgo and EMI payments.

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!

Financing Basics

Financing Basics
	You're sitting in the dealership when the salesperson asks, "So, how are you going to finance your new car?" The question leaves you a little confused. What is he really asking? Getting finance at a good rate needn't be daunting and doesn't need the financial acumen of a chartered accountant. Don't be the subject of high interest rates on car loans. Let AutoIndia.com and our partners help you finance your next car loan today. Find the best rates and coverage for your car loan through our partnerships with online finance companies. Here you will be able to find and compare the best rates to fit your budget for your car loan. Organized and institutional auto finance has come into its own with the coming in age of the 90s. Their services are being marketed aggressively and imaginatively, loans sanctioned quickly and formalities completed within a day or two. In a recent research it was found that the total outstanding auto loan book at the end of March 2004 was Rs 34,100 crore (Rs 341 billion) and is expected to have risen to Rs 43,780 crore (Rs 437.8 billion) at the end of March 2005. The total disbursements in 2003-04 were Rs 22,700 crore (Rs 227 billion) and are estimated to have risen to Rs 26,700 crore (Rs 267 billion) in 2004-05. For the average loan seeker, however, deciding on which loan to take, on what terms, whether to go to the financier or the bank, the marketing jargons, the dealers to choose -afford a veritable dilemma. In such a scenario, it would be much better if you were a well - informed customer and knew what was in store for you. We hope this page will go a long way in clearing those cobwebs that had you flummoxed. Taking a loan amounts to your committing yourself to regular payments for a while, till you pay off your amount you have loaned that is. On the plus side, loans offer you the chance of buying a vehicle when you cannot afford to buy it upfront. Financially too, it is a viable offer. Generally the financiers offer 80% of the total amount of the vehicle as loan. Keeping this in mind, if a vehicle costs Rs. 2.25 lakh today, you will receive a loan of Rs. 1.80 lakh. At the current rate of interest at 16%, you will have to repay Rs. 6,330 for the next 36 months. Alternatively, saving the same amount of money saved would get an interest of 12% and it would be 30 months before you bought the vehicle. By 30 months, your investment amounts to roughly Rs. 2,20,000 which will still be 80% of its value at that time, assuming its price has shot up to Rs. 2.75 lakh by now. The big difference, however is, that had you taken that loan, it would have been in your possession 3 years earlier. So, going back to the salesperson's question, "How are you going to finance your new car?" your answer could be one of three things: "I want to buy the car." "I will be paying cash for the car." Let's look in more detail at each of these financing options so you can know what to expect at the dealership:
	"I want to buy the car."
	If you decide to buy the car and you want the dealership to help you finance it, you will be asked to fill out an application. A loan will be arranged through the dealership's preferred institution based on the negotiated price of the car and related expenses (sales tax, registration and licensing fees). Loaning money is big business, and most auto manufacturers have their own companies to arrange loans You will probably be asked how quickly you want to pay off your new car. Most auto loans are from three to five years -- 36 to 60 monthly payments. Different lengths of time can be arranged, if desired. Obviously, the longer you take to pay off the loan, the lower the payments will be. In addition, the amount of your monthly payment will depend on the interest rate, the length of the loan and the amount of your down payment. Keep in mind that the dealership will urge you to make a large down payment. While you are paying off the balance you owe on your car, the lending institution will hold the car's title. Once all the payments are made, the car's title is sent to you and you finally own the car.
	"I will be paying cash for the car."
	Paying cash for a new car makes the transaction very simple -- all you need to do is negotiate the price of the car and then write the dealer a check for this amount. This removes several variables from the negotiation process: the down payment, the interest rate and the monthly payment. Negotiating in this manner means the dealership can't disguise the true cost of the car.
	Interest & EMIs on Car Loans
	Loan for new Car Financiers Interest Rates Min EMI for 3yr loan/Rs1 lakh Min EMI for 5yr loan/Rs1 lakh ICICI Bank 11%-13% 3274 2174 HDFC Bank 10.5%-12% 3222 2131 SBI 9.75%-10.25% 3227 2125 Citibank 11%-12.5% 3150 2200 ABN Amro 11%-12.5% 3246 2155 Sundaram Fin 7%-11.5% 3200 2220 Loan for Used Car Financiers Interest Rates Min EMI for 3yr loan/Rs1 lakh Min EMI for 5yr loan/Rs1 lakh ICICC Bank 16%-18% 3516 2432 HDFC Bank 17% 3516 2451 Citibank 16%-18% 3550 2600 ABN Amro 17% 3516 2450 Sundaram Fin 14.5% 3400
	Disclaimer: These figures are approximations, that can differ from city to city and for different car models. Financial offers are also guided by the financiers' deals with the car makers.