What are the stages involved in availing a loan?
The stages involved are:
- Sanctioning of the loan
How much finance am I eligible for?
The quantum of finance you can get depends on your income, your ability to repay and the financier's LTV norms for the car.
Why is a credit profile important?
To the financier your credit profile is the most important factor he will consider before funding you. Your credit profile tells him if you are able to and intend to pay back the loan to him.
What are the specific components of my credit profile?
The components are age, profession or occupation, income and financials, previous credit history and your home, ie, if you live in a rented accommodation or in your own home .
What can I do if my credit profile does not match the financier's requirements?
If your credit profile does not match the financier's requirement you can strengthen it by bringing in a co-applicant or guarantor who would be able to match the requirement.
Who can be my co-applicant?
If you are an individual, your spouse, parent or children can be your co-applicants and their income can be clubbed with your income to meet the eligibility criteria. If you are a partnership firm or a private limited company, any one of the directors or partners can be your co-applicant.
What documents do I need to establish proof of income?
For income, most financiers look at your IT returns for the last two years. Financiers also look at the nature of income. Some of them do not consider speculative income (especially from the stock market), rental or agricultural income. Some financiers discount such income by up to 50% in their workings.
How long does it take to disbursement to take place?
It usually takes about 24-48 hours for the loan disbursement.
When do I make my first payment?
After the loan is approved, the first repayment will be due in one month (monthly) after settlement of your loan.
Can I repay my loan in advance?
Yes, but most Financiers usually charges a percentage of the loan amount pre-payment penalty on the amount being prepaid. It is usually 2-3% of the amount prepaid.
What are the various costs that have to be paid to the finance company to avail of a car loan?
Interest cost which the finance company charges for providing finance. Processing fees: It is a one-time charge taken for processing and legal paperwork. It is in the range of 1-3 per cent of the loan and has to be paid upfront to the company.
Can I get finance for accessories?
Most financiers do not finance accessories other than those which are factory fitted like air-conditioners. Some may fund music systems and such other expensive accessories.
Can I get finance for Insurance and Registration?
Most financiers do not fund insurance and registration. The LTV is worked out on the ex-showroom price of the car and does not include insurance and registration charges.
Do I need to have an account with a bank if I am availing the car loan from the same bank?
No, it is not at all necessary that you have an account with the bank, but some companies do give a discount if you are already their customer.
What is the difference between 'Reducing Balance' and 'Flat Rate' of interest?
In the 'Flat Rate' system, the rate of interest on the whole amount is calculated over the entire duration of the loan and the principal, plus the interest is divided over the number of installments.
If the loan is for Rs. 1,00,000 at the rate of 12% per annum, and the tenure is 24 months, then the interest for 2 years is Rs. 24,000. The EMI will be (100000+24000)/24, which comes to Rs. 5,166.67.
But in the 'Reducing Balance' system, also referred to as the WDV (the Written Down Value) system, the interest is charged on the outstanding balance of the loan.
If the loan is Rs. 1,00,000 at 18% for 2 years, then I have to pay an EMI of Rs. 4,919. Now, at the end of the year, I have paid Rs. 4,919*12, which equals Rs. 59,028, and the principal that is outstanding is Rs. 45,700, then in the 2nd year, the interest will be charged on Rs. 45,700 only.
What is a 0% interest scheme?
In this scheme you are not charged any interest. You only pay back the principal amount. However, be careful to check out the hidden costs under such schemes. There are some disadvantages in this scheme - the amounts financed are low and the tenure is short.
Why is the interest rate higher for a used car?
The interest rate will depend on the condition of the car. A used car carries a higher Asset Risk than a new car. Therefore, interest rates on used car rates are higher.
Is it better to go to my current financier?
Yes, if you have a very good repayment record for an earlier transaction, you are most likely to get a lower lending rate. Even your loan processing could be faster. However, do check out some competitive offers before taking a final decision.
What is a default?
Repeated prolonged delays and dishonoured cheques are deemed to be defaults in repaying your loan. Most financiers would expect you to turn in the asset on request, failing which they may seize your car, after serving you proper notice.
What happens if my cheque bounces?
Dishonouring a cheque is a criminal offence. Legal proceedings may be initiated against you. Your credit profile could be seriously damaged.
What happens if I delay some instalments?
You are advised not to delay your instalments because frequent delays may affect your credit profile and might make further borrowing difficult and costly. However, under rare circumstances, if you delay an instalment, most financiers would charge you a delayed payment charge, which could be as high as 3 %, compounded monthly. This could be twice the rate at which you borrowed .
What happens if the car meets with an accident?
In the event of an accident you will have to inform your insurance company /agent. They will send an assessor to assess the damage to the car. The insurance company will process your claim and pay it directly to the financier, unless you have taken an NOC from the financier, in which case the payment will be made by the insurance company in your favour. The financier will normally give an NOC if you are regular in your payments. In case of a complete loss, the financier would receive the payment directly from the insurance company.
What is an Exchange Scheme?
Some dealers may offer you an exchange scheme whereby your existing car can be upgraded to a new one. The dealer will purchase your car at a price depending on the model, year and the condition of the car. The value of your old car is then adjusted against the purchase price of the new car. You could also get the balance amount financed.
Can I sell the car during the tenure of the finance contract?
No, you cannot sell the car unless you repay the loan. An NOC is required from the financier before you can sell the car.
What happens when the loan is fully paid off?
After the loan has been fully paid off, the financier will issue Form 35 with a covering letter (NOC) to the RTO for cancelling their name from the R/C book. A similar NOC will be issued to the insurance company requesting for the deletion of their name from the policy.
What are the finance companies' rights in case of repossession?
The finance company, upon the occurrence of any of the events of default, can declare all the sums for the full term of the hire-purchase immediately due and payable upon the hirer. If the hirer does not make the payment within the specified time, the company can take the following steps-
In case of a shortfall in respect of the amounts due to the company after the sale of the vehicle, the finance company is entitled to proceed against the borrower for recovery of remaining amount, and the borrower will continue to be the debtor of the finance company.
- Demand that the vehicle be returned to the company.
- If the hirer does not return the vehicle within 7 days from the date of demand, then the company officials can enter the premises where the vehicle is parked and take immediate possession of the vehicle.
- The finance company can sell the vehicle after giving 7 days' notice in writing to the borrower.
- The finance company can dispose of, hold, use, operate, give on hire or keep idle such vehicles without any duty or account to the borrower.