Several manufacturers in the Indian auto industry are offering easy financing facilities at fairly low interest rates for their cars. This approach is helping them clear off their bulk inventories and record decent sales. For example, the financing wing of German car maker Volkswagen is presently providing loans at 5.99 per cent interest rate, but only on two models - Polo and Vento.
Analysts believe that buyers should not only think about the facilities like low interest rates while buying cars, but also look for the car which meets their demands, including factors like fuel economy and budget. If these factors do not go by their choice, individuals are advised to take an auto loan from a different institution and go for the car which suits them best, even if it is at a higher rate.
It is easily possible for car makers to offer loan on attractive rates, but they will be provided on limited models only. Low interest rates are mainly offered on cars which have not performed well in the market and, thus, these loans help them to push their excess inventories.
In India, public sector banks offer loans at 13 per cent interest, whereas private banks charge a maximum of 17 per cent interest on a loan of Rs. 5 lacs. The financing departments of different auto makers, including Tata Motors Finance, Hyundai Finance and Mahindra Finance, provide loans at approximately 12 to 14 per cent. Such lenders offer fixed as well as floating interest rates and their locking period normally ranges from 3 to 5 years.
Analysts further stated that the buyers will be still attracted towards the financing schemes of car makers even if they do not offer lower rates, since they process applications faster with fewer formalities. Reportedly, it was found that auto makers' financing departments are introduced so that they can provide easy solutions to their clients. Abdul Majeed, Partner and Leader (Automotive Practice), PricewaterhouseCoopers, quoted, “In case of loans from such companies, documentation is often much lesser than a bank loan. Add to that, loan disbursal is also faster.”
Of late, Toyota Kirloskar Motor introduced its own financing arm in the country, called Toyota Financial Services India (TFSI). This company provided customers with facilities like approval of loan in eight hours, easy paper work and insurance funding. On the other hand, banks have a little more time-consuming documentation policies than these financing arms, but borrowers with decent credit score and good record are facilitated with lower interest rates. Moreover, banks may provide loans on longer repayment periods, based on the lender-customer relationship between the two, in contrast to financing organisations.
Generally, banks extend the repayment period of their loans by up to 2 years for their old clients. These initiatives trim down the periodic burden on the borrowers. Kunal Khattar, Vice-President, Carnation Auto commented that in case the borrower is an important customer of the bank, the institution reduces their processing fee or may even waive it off altogether.
However, individuals should always insist on availing cash discounts at dealerships while purchasing a car. Several dealers try to attract buyers with goodies and freebies, including car accessories and lower interest rates. If the car's base price is lower, then the interest charged on it will also be low. On the other hand, customers who opt for bank loan at low interest rates may also be at the losing end as they will be subjected to market situations as fluctuation in interest rate cycle will affect them directly.
