Auto Loans: Understand the Total Cost


The Indian market, in present times, is filled with banks and other financial institutions offering auto loans, making cars much more accessible to the common man. Auto loans can be availed for all types of vehicles, whether they are new or used ones. It is, therefore, helpful if a buyer understands the total costs involved while buying a car with a loan.

Components of an auto loan payment:

An auto loan payment consists of three parts; the principal, interest and term. The principal is the price of the car being purchased. The interest is the percentage of the loan a borrower pays to the financing agency. The term of a loan is the amount of time that the borrower agrees to pay back the loan.

Amount and tenure of loan:

Auto loan amounts usually depend on the type of vehicle chosen, the percentage of financing and the cost of the vehicle. For new cars, up to 90% of the total cost can be availed of from lenders. Some finance companies set a limit beyond which they do not offer any loans. Most have different terms and conditions for different models. Further, no collateral is required to avail a car loan. The finance company hypothecates the vehicle in its name.

Normally, the tenure of repaying auto loans varies from 1-5 years. However, there are some banks which offer a flexible repayment option of up to seven years.

EMI calculator:

An individual can opt for any auto loan financier and his choice depends on various loan options, banks and credit history. Therefore, pre-calculated EMIs are usually inaccurate. Instead of comparing the absolute EMIs being offered by various lenders, a buyer should examine the options available and make the best possible choice.

Other charges:

A car's total cost includes not only the interest payable, but also extra charges such as processing fees, transaction fees, documentation fees and other charges which are usually a small percentage of the loan amount but varies from bank to bank. Insurance cover is another important expense and a mandatory one that a buyer must have for his vehicle.

Therefore, a person must consider several aspects involved in the process, while having decided to buy a vehicle through finance,. There can be several hidden charges that a finance agency may be imposing on a loan and it is best to read the offer document carefully before entering into a deal.



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