Car Financing & Loan options
Now-a-day to avail an automobile loan is made very easy. It is also seen that there are numerous companies who are aggressively marketing auto loans schemes by offering innovative and tempting offers to various customers. These establishments finance a major amount keeping in mind the model and the other vital features of the vehicle.
Types of Automobile Loans
Here are some of the best loan schemes described below. You are at the privilege to select the scheme that covers your requirement.
Margin Money Scheme:
To be a member of this plan, you are required to pay margin money of at least 10% of the total loan amount, along with one EMI. Post-dated cheques can be the medium of the balance payment, which are issued for the balance EMI’s covering the remaining period. With a repayment term of one to five years (in some cases seven), the Margin Money Scheme is the most sought after. Scheme is most preferred for the simple reason that it has lowest EMI to be paid, compared to other schemes for the same amount of loan.
Advance Equated Monthly Installment Scheme:
This scheme offers 100% loan. Payment of five EMIs in advance is essential along with the post-dated cheques of the balance amount covering the remaining period of the loan. The main disadvantage of this scheme is that though it offers 100% finance, you need to pay five to nine installments up front. Besides, you go on to pay a higher EMI amount because the interest is charged on the entire loan amount.
Security Deposit Scheme:
In this scheme, a specific sum has to be deposited upfront as security against the amount provided as the loan. This security deposit is refundable on completion of the full period of the loan. You will receive interest on the deposit, which in most cases is lower than that charged to you on the loan amount. The EMI under this scheme is higher than the EMIs under the above two schemes. The security deposit ranging from 10-30% of the total is returned after the loan period. The deposit also earns a simple or compound interest, the tenure lasting for two to five years.
Hire Purchase Scheme:
This is an agreement under which the car is let on hire and under which the hirer has an option to purchase the car in accordance with the terms of the agreement. Hire Purchase agreement is mostly offered by Non Banking Finance Companies. Broadly this option works similar to the loan option. NBFCs usually charge an amount as low as One Rupee, called Option money, on payment of which the car passes on to the hirer. The NBFC's have taken to this option, as they are not encouraged to give loans, which is a Banks privilege.
Lease Financing Purchase:
Lease is a contract between the owner of an asset (the Lessor) and its user (the Lessee) for the hire of that asset. The ownership rests with the lessor while the right to use the asset (car) is given to the lessee for an agreed period of time in return for periodic rental payments by the lessee to the lessor. Lease agreements are offered by NBFC's and are mostly availed by Corporates looking at it mainly from tax saving angle.
Vehicle Financing At Your Door Step
Banks are the best reliable source getting finance. You can avail good service, though not comparable to some other finance companies. Although Banks are known for their time-consuming nature, they are more reliable than some bank companies.
Non-Banking Finance Companies (NBFCs):
The NBFCs are basically partnered with dealers and manufactures. This group is not only prompt in their work and services but also is highly organized. Certain things that have to be kept in mind while joining hands with NBFCs are about the dealer discounts wherein some financier's claim, that they can get better discounts from the dealer if the buyer gets the vehicle financed through them. This statement cannot be relied upon due to the dealer-financier nexus.
Zero percent finance
This scheme is run in 2 methods. First, the dealer discount is omitted but the amount is received from the interest that you have otherwise paid. Second, the interest is absorbed by the dealer and finance together wherein the loan tenure is relatively short.
Some financiers offer attractive rates (10 per cent) through flat interest schemes. The fact that the effective interest rate you pay is actually equal to 15-17 per cent you might pay by a reducing balance method is something that is unknown to many individuals. The percentage should be on the cash flow rather than on the total amount.
Down payment schemes
The down payment scheme gives total finance of the car but asks for a down payment which is then returned after a period of time. The interest rate on this scheme is not more than 2-3 per cent which is lower than the actual cost of your borrowing. This is mostly not recommended unless the cash flow impact is favorable for you compared with other schemes and the financier is a reputed one.
The financier will pay for 70-90 per cent of the car up front with the buyer paying the margin.
An improvised version of the margin money scheme, the Advance EMI pays the advance EMI’s up front indicating a complete finance package. The number of EMIs paid in advance thus effectively reduces the loan amount.