So you’ve decided to buy a car? Welcome to a lifetime of complaining about the price of fuel, how everyone on the roads is a terrible driver (except yourself) and why traffic cops are the lowest form of human life.
Before you reach that stage though, you will have to negotiate the maze known as ‘getting a car loan’.
Here are some tips that we hope will help you get the best possible deal on the loan so that your monthly outgo is minimised. (Trust me, you will be spending so much on petrol, you do not want to add a high EMI on top of that).
Negotiate the price of the car
The best way to reduce the size of your car loan is to reduce the price of your car. While this sounds intuitive, it is amazing how many people end up paying the sticker price of the car. The fact is, that dealers have a considerable margin and are generally willing to reduce the price of a car by a lot if they feel you are a serious buyer. You may also be eligible for corporate discounts by virtue of the office you work. Try to get any discount you can and reduce your car’s basic price. Secondly, avoid the accessories the dealer will try to stick you with. Opt only for the one’s you really need.
Shop for your loan separately.
Dealers will typically have a tie-up with a Bank or NBFC for car loans and will try to convince you that it is the best deal available. They will even say that other options are very cumbersome and require too many documents. Do remember that the dealer gets a commission from the lender for every customer he gets. If you want the best deal you have to look for it. Check out at least five or six lenders, including nationalized Banks, private Banks and NBFC’s.
Go for shorter tenure loans
Do not shop for the lowest EMI, rather look for the lowest interest rate and shortest tenure that you can afford. Remember that, the longer the period you opt for, the more the amount you pay as interest will be (even if EMI is lower). A car is, after all, a non-appreciating asset, so you do not want to pay any more than you absolutely have to. Moreover with no tax breaks for car loans, the sooner you pay them off the better.
Check the fine print
And then, check it again. Look for ‘variable interest rates’ (not recommended for car loans), ‘prepayment penalty’ (charging you for paying back your loan too early) and ‘bundled insurance’ (a policy added to the cost of your loan – take only if needed). Do not sign for anything you are not comfortable with.
Negotiate the rates and fees on the loan itself
While a short-tenure loan like a Car loan does not usually leave much scope for negotiation, it is worth trying for a lower rate or waiver of processing fees when you are applying for it. Typically, negotiation is possible if you have a good credit score
Check your credit reports
CIBIL (India’s main credit bureau) allows you to check your own credit score. While it costs a little, it is worthwhile to keep updated about what that score is since it lets you know where you are likely to stand with the bank (it is one of the first things they check). In fact, I would recommend doing this before you start looking for a loan, because sometimes CIBIL assigns you a low score due to some outstanding debt, or some incorrect data which you can then get corrected before approaching the lender.
With a higher credit score (Anything above 750 is good) you can try and negotiate your loan rates and get favourable terms for yourself.
So there it is – Happy Driving (but watch out for pesky pedestrians)!