Your new car to pinch less

With the festival season round the corner, tough competition among banks and financial institutions has ensured that auto loans get still cheaper.

For instance, in August, Canara Bank, IDBI Bank and ICICI Bank had revised their auto loan rates. Along with State Bank of India's fixed-cum-floating offer in the home and auto segments, Canara Bank is also offering a similar loan facility.

That is, SBI is offering 8 per cent for the first year, 10 per cent for the next two years. Canara Bank is charging 8.5 per cent in the first year, 9 per cent in second year and 10 per cent between third and fifth year. Following this, both ICICI Bank and IDBI Bank too cut their rates.

For a consumer, there are a few things to ponder over. While the rate of interest is the most attractive feature of a loan, other issues such as structure (hybrid or fixed-cum-floating), loan-to-value on offer, tenure or time period and dealers' partners need to be considered as well.

An auto loan seeker, for starters, should approach his/ her bank. A good existing relationship can make things easier. Umesh Arora, head, retail liabilities, Axis Bank, said, "In the auto or personal loan space, an existing customer has a clear advantage. And depending on this, one can even get 0.5 per cent discount. Some banks can also give relaxation towards initial down-payment."

For those who want to scout for a good loan offer, here's some help. Let's first look at the cheapest loan for different tenures. If you are planning to take a loan up to three years, SBI emerges as the best bet. The bank's offer of a fixed rate for three years makes it an attractive proposition. The average yearly rate comes to 8.87 per cent - the lowest.

In terms of equated monthly instalments, a loan of Rs 300,000 for three years would lead to an EMI of Rs 9,400 in the first year and Rs 9,592 in the second and third year. However, a car buyer has to fork out 15 per cent of the total cost as SBI lends only up to 85 per cent of the car's value (on road price) for new as well as second-hand cars.

For loans with tenure of three-seven years, Canara Bank has the best offer. For instance, a car loan of Rs 700,000 for five years would mean that the average rate is 9.2 per cent a year.

The EMI will work out like this - Rs 14,362 for the first year, Rs 14,638 for the second year and Rs 14,712 from third to fifth year. The only drawback - Canara Bank does not provide four-wheeler loans for tenures above six years. The bank funds 90 per cent of a new car's 'on-road' price. For used cars, loans are given only up to 75 per cent of the car's value.

In comparison, ICICI Bank's EMI for the same loan would come to Rs 16,379 at an average rate of 14.25 per cent.

While offers of public sector banks are quite impressive, the process could be time consuming. This is because they follow a centralised loan approval system that leads to delays in sanction and disbursal. Also, they are more stringent as far as the loan-to-value percentage goes.

If you are unable to shell out the required 85-90 per cent, approaching private banks through direct selling agents or dealers help. In fact, some DSAs claim that they can get you a 100 per cent loan on select models. "The customer will need to shell out only the first EMI in advance for some cars such as Maruti Swift," said a DSA for a private bank.

Like mutual fund distributors, both dealers and DSAs normally have partnerships with as many as four-five banks. This helps them get you a better loan-to-value deal or even rates, at times. "As dealers, we need to provide options to customers.

Normally, even before the customer has decided on the model, we spend some time with them to understand the kind of financing he/she will require," said a Mumbai-based Maruti Suzuki dealer.