Car loans witness a hike in interest rates

author image Vikas Yogi
Saturday 05 February 2011, 00:00 AM

India is now amongst the fastest growing auto markets in the world. The auto industry is poised to take a hike in loan interest rates from 3rd Feb '11. HDFC and Kotak Mahindra, the top auto loan providers are planning to apply these increased interest rates which would end up going above 13%.

"We have decided to hike rates by 50 bsp in response to the latest increase in rates by the RBI. The rack rate range now spans 11.5 to 13.5% depending on vehicle type and loan tenure", Ashok Khanna, senior executive vice-president, HDFC Bank said. Kotak Mahindra on the other hand has decided to increase rates by 50 bsp. "With this hike, the lag in the transmission of borrowing cost hike on the lending side has been narrowed down to 25 bsp." Sumit Bali, CEO, Kotak Mahindra Prime explained.

An increase of 50 bsp for the most common of loan period such as 36 months results in a hike of just Rs. 25 per lac, or Rs. 1200 per year on a small car costing 4 lac, while it comes out to be Rs. 1800 in case of a mid size sedan. The EMI weighs more on loans for smaller cars like i10 where interest rates go up as against a loan for a luxury car like Mercedes C Class.

The most economical interest rates are available on loans ranging from 20 lac or more. The rates differ depending on the period and models. The 36-60 month term carries the least expensive rates.

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