BFSI

Buying a Car through Bank Loan?

Read (and Re-Read) the Fine Print
Car loans are a dime a dozen. Almost every bank wants you to take your car loan from them,
applying their persuasive power through advertising in the various mass media. Low interest
rates, flexible repayment terms, low monthly payments, instant approval – they all claim to
have a USP. Somewhere a particular bank announces through ‘jingles’ in a TV ad a ‘car loan
mela’ for a particular period, especially during the festive season. Another bank may have tie-
ups with car dealers/manufacturers wherein consumers get a cash discount if they avail of a
bank loan for financing that particular car make. So, in theory any walk-in consumer in a bank
has only to state their requirement and submit proof of income and car invoice. The question
is: which bank may you approach, keeping in mind the deal that works best for your budget
and expectations?
Gopal Ravi Kumar & Subas Tiwari

F
or the purpose of this study, we chose a the most important variables based on consumer
total of 11 banks (6 public sector banks perception, we identified eight product attributes –
and 5 private banks) who offer car loans including maximum loan, rate of interest and time
to the public. Car loan up to Rs 10 lakh taken for sanction – assigning a total of 80 points.
with a floating rate of interest has been The rest 20 points were assigned towards consumer
considered for this study. Taking into account feedback.

CONSUMER VOICE FEBRUARY 2015 s 19

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CV Weightage Bank PNB State Bank of State Bank of Central Bank

(Criteria) India Patiala
Points 100
15 Annual income 2.40 (5) 3 (5) 3 (5) 2.40 (5)
(Rs, lakh)
15 Maximum loan 25 times of 48 times of 48 times of 24 times of
(Rs) monthly monthly monthly monthly
income (7) income (10) income (10) income (7)

15 Margin (%) 15 (9) 15 (9) 15 (9) 10 (12)

5 Processing 10,000 (2) 5,000 (3) 1,000 (4) 5,000 (3)

charge (Rs)

15 Rate of interest 10.65 (15) 10.45 (15) 10.45 (15) 10.65 (15)
(%)
5 Third-party Yes (0) Yes (0) Yes (0) Yes (0)
surety
5 Third-party Yes (0) No (5) No (5) No (5)
product (sale)
5 Time taken 10+ (1) 10+ (1) 6 to 10 (3) 10+ (1)
for sanction
(claimed
number of
days)
20 Consumer 15 10 15 10
feedback
Total 54 58 66 58

branch for convenience of banking, and taking into

CV RECOMMENDATIONS account the neighbourly relationship that develops
BEST BUY over a period.
ICICI Bank
GOOD BUY Pre-Sanction Formalities
Bank of India An interaction follows with the dealing bank
FAIR BUYS official after handing over of the bank application
Federal Bank form to the prospective car buyer. Details of existing
IDBI Bank bank account, type of profession, qualification,
State Bank of Patiala existing bank-account statements, income, filing
of income-tax returns, etc., are sought to assess
To Begin with the prospect’s eligibility for the loan. If the car
Consumers are well advised to approach the bank buyer does not have a bank account, ‘know your
where their salary/professional income is maintained customer’ norms are also to be complied with on
or where their employer maintains the company opening of a bank account. The application form is
account. One can also approach the local bank duly filled in by the prospective loan client and is
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 Buying a Car through Bank Loan

Bank of Federal HDFC Bank ICICI Bank Axis Bank Canara Bank IDBI Bank
India Bank

Any (15) 0.9 (10) 1.80 (10) Any (15) 2.40 (5) 3 (5) 1.80 (10)

24 times of Any (15) 6 times Any (15) Any (15) Any (15) Any (15)
monthly of yearly
income (7) income (10)

Nil (15) 10 (12) Nil (15) Nil (15) Nil (15) 10 to 20 (5) 10 to 20 (5)

500 (4) 2,500 (4) 5,225 (2) 10,000 (2) 5,500 (2) 2,500 (4) Nil (5)

10.65 (15) 10.90- 12.05 10.70–12.25 10.75–15 (3) 11.50 (7) 10.70 (10) 10.95 (10)
(3) (3)
Yes (0) No (5) No (5) No (5) No (5) Yes (0) No (5)

Yes (0) Yes (0) Yes (0) Yes (0) Yes (0) No (5) Yes (0)

10+ (1) 6 to 10 (3) 0 to 5 (5) 6 to 10 (3) 6 to 10 (3) 6 to 10 (3) 10+ (1)

15 15 15 12 12 10 15

69 67 65 70 64 57 66

CONSUMER VOICE FEBRUARY 2015 s 21

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given to the bank along with a copy of the invoice favouring the car dealer from whom the car is to
(which contains ex-showroom price, insurance be got delivered. Along with these, the bank also
premium for the first year, registration certificate signs a letter to the Regional Transport Authority’s
[RC] charges) for the car that he is seeking to buy (RTA) office informing about the existence of a
with the bank loan. ‘hypothecation agreement’ between the bank and the
loanee so that the same gets reflected in the original
Next comes the assessment for loan. The bank
registration certificate. An undated transfer form
accesses the CIBIL credit score of the prospective
(addressed to RTA) is also executed by the client
loanee, after getting some amount deposited with the
which would be used by the bank in the event of the
bank as ‘processing charges’. Once the bank ascertains car being sold by the car owner without reference to
that the CIBIL score is favourable, the process note the bank.
gets prepared for sanction.
Post-Sanction Formalities
Sanction and Disbursement
Once the loan account is opened, the post-
The bank issues a ‘letter of sanction’ stating the sanction formalities begin. The delivery of the car is
terms and conditions of sanction, covering aspects followed by a bank official’s visit for them to record
such as amount sanctioned, interest rate, EMI, period the registration number of the vehicle as also the date
of loan and margin required to be deposited. It also of physical inspection of the car. The copy of the
contains information on service charges, depositing insurance policy is also to be delivered to the bank,
of postdated cheques (PDCs) covering the period of and is kept with the relevant loan documents. This
loan, etc. Once the bank documents evidencing the insurance is to be renewed every year at cost to the
loan for purchase of car are executed by the client, borrower till clearance of the loan. A copy of the RC
the loan amount is disbursed by means of a pay order is also kept with the loan documents.

What to Consider while Choosing a Car

Price range
Before all else, get your figures in order. What is the price range you can afford? If possible, seek
advice from a financial planner first, whether it’s a bank loan expert, an accountant, or a friend or
relative with money-management skills.
Also, like you shop around to get a good deal on your new vehicle, why not shop around for the loan
to pay for it? Most people don’t. They go to the dealer without doing any homework.

Checklist
Be sure about the type of vehicle you want to buy and then narrow it down to the models and brands
you are considering. Decide which options and features you want and don’t want. The Internet is a good
place to research your potential vehicles, and to read reviews in independent automotive information
sites. (p.s. It has been observed that even though a new car was bought in April and duly registered as
the latest model in the RC, when checking with the engine the model turned out to be of the previous
year! Hence, car experts advise that the engine be checked to ascertain the actual year in which the car
was manufactured.)

Diesel or petrol?
Before deciding what model you want to buy, or even which make, one of the first things you need
to work out is which fuel to use. Traditionally, diesel cars were considered smelly, noisy and expensive
to buy. However, you often get more miles out of a tank, whereas petrol cars are seen as less economical
but quieter and cheaper to buy.

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 Buying a Car through Bank Loan

In India, with the price differential between petrol and diesel narrowing sharply, the extra money
paid to buy a diesel variant no longer makes economic sense unless justified by usage, says Crisil Research
in a recent note. Diesel cars have typically been priced higher in India compared with petrol variants
because of technology costs and other factors. This price premium ranges from about Rs 1 lakh for small
car models to as high as Rs 3 lakh for luxury sedans, says Crisil.
The car market is also offering electric cars or cars fitted with CNG/LPG kits, but these are at a
nascent stage & not many cars are available to choose from.

Comfort
Yes. It’s all about comfortable seating, least of jerks while braking, and utmost driving pleasure while
on the go. Go for a car that provides a lot of leg room between the car seats. A seat that causes discomfort
or even a bumpy ride can make the drive very unpleasant. Consumers are bombarded with a lot of
‘technicalities’ about the ‘salient features’ of the inside of a car, but what it must all boil down to is
comfort and safety for the ultimate users.

Safety
Is there a trade-off between safety and affordability, is a question that you must ask of yourself. How
much does it mean to you to have a car with life-saving features such as airbags and anti-lock braking system
(ABS)? A baffling aspect that has in recent times entered the public consciousness is that most of the
companies operating in India are global players and pack their export models with topnotch safety features
— even offering six air bags on a compact car — whereas the models meant for India lack many of these.
Do we simply assume that a new modern car is safe, or is it that we just don’t think about it? In any
case, it will be handy to note that safety equipment on a car is usually mentioned in a separate category
under its specifications and feature list.

Durability
Buyers should dwell on the technical specifications with regard to engine capacity, ground clearance,
torque, aero-dynamism, etc.

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If you have still not bought the car of your dreams, don’t lose heart; there are entry, SUV and MPV models
coming your way in 2015.** (See accompanying table.)

Manufacturer Model Expected month of Price range (Rs, lakh)

release in 2015
Datsun Datsun GO + (MPV) January 4.80–5.50
Maruti Suzuki Celerio (D) February 4.30–5.50
Maruti Suzuki S Cross-SUV March 9.00–12.50
Renault Renault Lodgy-MPV March 9.00–13.00
Honda Honda Jazz April–May 5.75–8.00
Renault A Entry July–August 3.20–4.50
Tata Nano AMT (AT) July–August 2.50–3.50
Tata Kite Twins July–August 4.00–7.00
Mahindra Rugged – U 301 (SUV) July–September 5.75–8.50
Ford Ford Ka Twins August–November 4.00–7.50

Hyundai GCI (compact SUV) September–October 7.50–10.00

Mahindra Micro (S-101) SUV September–October 3.99–6.00
Datsun Redigo October 2.80–3.50
Maruti Suzuki Upper Premium October–November 5.50–7.75
Hatchback
**Economic Times (31.12.2014)

Other Loan-Related Tips. Generally

Always prefer a floating rate of interest as compared to a fixed rate, which some banks want to
offer. A floating rate would come down by a few notches if the economy performs well and you
could be one of the beneficiaries of a robust growth.
Be on the lookout for a ‘loan mela’ or a ‘loan campaign’ in your residential/commercial area.
During this period, bankers tend to be ‘aggressive’ in sanctioning the loan with least delay (as it
suits their targets). Further, during this canvassing, processing charges are either minimal or could
be totally waived. You could be in for another surprise: a small discount in rate of interest.
Banks tend to ‘push’ their third-party products along with the car loan. Resist all pressure, saying
that such products need not necessarily perform well.
While completing documentation, insist on your copy of the main ‘agreement’ along with a copy
of the bank’s sanction.
While submitting a loan application to the bank, superscribe on the form the purpose of the loan,
to thwart any later attempts by some shrewd bank employee to misuse your application for other
purposes (issue of credit card, mutual funds, insurance, etc.).
Never put your signature on blank documents. Read the documents well before affixing your
signature.

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