Five point checklist for luxury car loans

Naveen KukrejaPaisabazaar.comCars are an indispensable asset in our life journey. It starts with taking out your dad’s car for a joyride, and moving on to buying a car that matches your status. They have come to quantify our financial success and standing in the society. As the number of millionaires in India continues to rise sharply, the demand for luxury cars has also gone in the overdrive. Before availing a loan for your coveted luxury car, here are some of the factors you must keep in mind:1. Interest rate: This is the most important factor that you as a borrower need to check out. A small difference in the rate of interest can lead to a sizeable hike in your EMIs and interest payout.

As you can see, a difference of 1% p.a. in the rate of interest on Rs.25 lakh car loan with 7yr tenure may lead to a difference of over Rs.1300 in EMIs and about Rs.1.10 lakh in case of total interest pay-out.Do your homework well to identify lenders offering the best deal. In fact, many lenders charge lower interest rate on luxury car loans than what they charge for compact cars. The financing arms of luxury car companies also offer cheaper rates than other lenders. Go for a floating rate of interest, especially when you opt for a short tenure, say 3–5 years. However, if you are opting for a longer tenure loan, stick to fixed rate of interest. 2. Down payment: Lenders usually ask for a down payment of 15%–20% of the overall loan amount. However, some banks such as ICICI Bank and HDFC Bank, provide up to 100% finance. But keep in mind lower down payments translate into higher EMIs and interest payment. Ideally, your car loan EMI should not exceed 25% of your salary.3. Processing fee: The process of calculating processing fee varies from lender to lender. Some lenders use fixed percentage of their loan amount as processing fee while others have a flat processing fee. At present, Audi Finance charges Rs.4545 for car loans of over Rs.10 lakhs. On the other hand, HDFC Bank charges Rs.5870 for car loans of over Rs.10 lakhs. 4. Prepayment charges: These are levied when borrowers prepay the loan amount or a part of it before the expiry of the credit period. So, before signing the dotted line, see whether your potential lender is also levying it. For instance, State Bank of India has no prepayment or foreclosure penalties while Axis Bank charges 5% of the outstanding principal. 5. Loan tenure: Your loan tenure can be anywhere from 1–7 years. Avoid longer tenure loans and go for a range of 3–5 years. Although a lower tenure would result in higher EMIs, it will help you save on your interest cost. Therefore, if your financial position allows it, opt for a short tenure loan. To sum it up, conducting a good research on lenders and dealers is the key to finding a good deal for your luxury car.