A car means a lot to many people in India as it is a dear property one wants to own and drive around. Whenever a new model makes its way to the market flushed with car aficionados, the excitement level goes to the crescendo. Auto exhibitions, which happen every year, see packed house from buyers to journalists watching and covering the event. The people, who romp to these shows, get fascinated by the glitz and start booking the order. Well, the riches can bring home a new car any day in their parking lot. But many sitting on a tight budget or due to some other reason only live the dream and fail to buy the possession.
However. with the advent of attractive finance schemes from the lenders, the tide has somewhat turned in favour of the car buyers. Doesn’t matter if you are buying a new car or an old one, the lenders are ready to give you the loan to make your dream come true. But with a loan, comes the role of interest rate, which determines the repayment in the form of Equated Monthly Installment (EMI) and the total interest outgo over the loan term. So, don’t go by the marketing gimmicks of the banks telling that they offer loans at the lowest interest rates. Go deep and find out the actual car loan interest rate yourself.
How are Car Loan Interest Rate Set by Lenders?
Car Loan Interest Rates are set by the lenders according to the market forces. PSU lenders like State Bank of India (SBI), Bank of Baroda (BoB), Bank of India (BOI) and others provide a floating rate car loan based on the Marginal Cost of Lending Rate (MCLR), an interest rate mechanism introduced by the sector regulator Reserve Bank of India (RBI) about a year back. But the private biggies like ICICI Bank and HDFC Bank, which despite being dominant players in the market, are still providing the car loan at fixed rates, preventing the borrowers from the rate cut benefit that’s due to MCLR customers.
Whatever changes that the RBI makes in its repo rate, the rate at which the central bank lends to commercial banks, the lenders reset the MCLR and based on that, the effective lending rate may go up or down. If you talk about the current scenario, the interest rate is on a downward trend. In the last 3-4 months, the average lending rate has gone down by more than 1%, slashing the EMIs and providing the much-needed relief to the wallet of borrowers serving the MCLR-based car loan.
However, what boils down to the eventual setting of interest rates is the perceived risk with respect to a loan. The risk can be best evaluated by 3-4 different factors, which are going to be detailed below.
Credit Score- Doesn’t matter how good the repayment capability you may have, if you have defaulted on the payment of loans and credit cards in the past, your credit score would go down. It could either eliminate the possibility of you bagging away the loan offer or raise the interest rate on your loan, making the car purchase an expensive affair.
Loan to Value Ratio- The amount of loan being borrowed is divided by the cost of the vehicle to determine the risk ratio. If the ratio is lower, the risk on the part of the lender would be a lot lesser. With that, chances are that the interest rate can come down.
Amount of Loan- The amount of loan can also raise varied levels of risk. Depending on the magnitude of risk, the interest rate would be set by the lender.
How to Check and Compare the Car Loan Interest Rate?
You can check the car loan interest rate online by visiting the website of various lenders. Jot down the rates of different lenders, compare and then select the bank or an NBFC for your dream car.
Car Loan Interest Rate, I guess, is understood at best. Do navigate through the lender offers but press the button of whom you find servicing the loan cost gonna be a smooth affair. If the loan amount disbursed to you is lower than what you were expecting, a chunk of the saving, if you have accumulated, can be used to reduce the quantum of loan and the interest outgo from your pocket.