PERSONAL FINANCE FOR PURCHASING CARS

 

Now‑a‑days, almost all commercial banks extend term loans for purchasing cars of nearly all 'makes'. However, each bank has its own loan scheme and therefore, details thereof must be obtained before dealing with a particular bank. The salient features of car‑financing scheme, in general, are stated below.

 

Eligibility:        1. Permanent employees of reputed establishments.

            2. Professionals and self‑employed who are assessed to income‑tax.

            3. Persons engaged in agriculture and allied activities.

 

Purpose of::     1. For purchasing new car, jeep or multi‑utility vehicles of any make.

Advance          2. Second‑hand cars may also be financed provided the vehicle is not more than 4 years old.

 

Quantum of

Loan                :Normally a maximum of Rs. 12 lacs for new vehicles and Rs. 8 lacs for old vehicles. A loan maximum of 2  times of the net annual income is normally sanctioned. Income of spouse can also be considered.

 

Margin            :1 New Vehicles ‑ 10‑15% for loans up to Rs. 4 lacs

                                                ‑ 15‑20% for loans exceeding Rs. 4 lacs

                        2. Old Vehicles ‑ 20‑30% for vehicles up to 2 years old

                                                ‑ 30‑40% for vehicles 2‑4 years old

 

Rate of

Interest           : Banks are free to charge any rate of interest.

 

Security           In addition to hypothecation of car, suitable co‑obligant/guarantor is insisted upon. Some times, approved securi­ties with sufficient margin may also be pledged.

                        Guarantee of the spouse if his/her income has been con­sidered for eligibility.

 

Repayment of  Principal amount along with interest is required to be repaid within a maximum period of 7 years in

Loan                equated monthly instalments (EMIs). In case of old vehicles the maximum repayment period is normally restricted to 5 years for vehicles up to 2 years old and to 3 years for vehicles which are 2‑4 years old. No repayment holiday is considered and the repayment starts immediately from the following month of disbursement.

 

Processing      No processing charges are normally charged these days.

Charges

 

Documentation Following documents are normally required to be submit­ted along with completed application form

                                    (i)         Bank statement for the last 6 months,

                        (ii)        Two passport size photographs.

                                    (iii)       In case of salaried persons, latest salary slip (in Form 16),

(iv)       In case of self‑employed individuals and profession­als, Income‑tax returns for the last two financial years. Besides, in case the borrower is not an existing bank customer, proof of identity and residence shall also be required.

Other Terms   1.         Loan amount is directly released to the dealer along­ and Conditions with margin money.

2.         In case of old cars, besides automobile engineer's certifi­cate, original invoice of the dealer is also insisted upon.

3.         Comprehensive insurance of the car financed by bank.

4.         In case of salaried persons, salary must be credited with the bank branch arranging loan otherwise mandate from the employer for repayment of instalments shall be obtained.

5.         Salary Certificate/Income Tax Returns/details of assets and liabilities of borrower and guarantor/usual loan application form are obtained before sanction of loan.

 

Equated Monthly Instalment (EMI)

 

The amount of EMI shall depend upon the loan amount, period of repayment and the rate of interest charged by the bank. Where the amount advanced is Rs. 2,00,000 and the repayment period is 60 months, EMI at the following rates of interest assuming interest calculated at monthly rest and repayment starts one month after disbursement of loan, shall be as under

 

Rate of Interest

8%

p.a.

9%

p.a.

10%

p.a.

11%

p.a.

12%

p.a.

Amount of EMI (in Rs.)

4055

4152

4249

4348

4449