But for a car loan, things are not that simple. What if you wanted a model that the manufacturer was trying to push? The interest rate, in such a case, could go down even to the 6 per cent range or lower. So, things can get significantly complicated.
Now, throw in cash-back offers, free insurance, accessories and service contracts tied to the car loan. Top it up with 30-odd manufacturers, 44-odd scheduled banks and a rash of other sundry lenders trying to push various cars and loan packages and the level of complexity increases geometrically.
So, what is the best way to negotiate this lunar landscape? Most people would throw up their hands and say, ?Here’s my down payment, this is the car I want, give me loan for the remaining amount at whatever the going rate is, and tell me how soon I can get delivery.?
Financed vehicles account for about 60 per cent of all vehicles sold in India, and anecdotal evidence suggests a huge chunk of them are sold pretty much this way.
This apparently easy way out may not eventually be so. You could end up with a deal that not only is loaded against you, but also take on too much of a debt load. In the worst case, you could default on the repayment and have the car repossessed.
And all it takes to avoid such a predicament when you are buying a car this festive season is a bit of homework, more so with the car loan interest rates creeping up. So, how do you go about it?
Fix the budget – The predicament that faces most car buyers is the tussle between the head and the heart. Car companies know this very well. Look at any model in the market. Most of them have a stripped out base variant, which you will almost never see in a dealership.
But look at the advertisements and, almost unfailingly, it is the price of the base variant that is flogged.
The trick is simple: dangle the price carrot, get the buyer into the showroom, sell up by telling him that the car he is looking for is not as nice as the costlier model (and they aren’t), why the latter is such a hot deal at a ’slightly’ (sic) higher price, that the necessary loan can be arranged, and would make a ’small’ (sic) difference to the EMI.
The beauty of this is that most buyers fall for it almost every time, even though it is the oldest trick in the book. And that is also where you start overreaching yourself. And all this after you have spent hours on the Net and with magazines and newspapers and done your research, which an increasing number of buyers are doing before hitting the showrooms, according to a J.D. Power Asia Pacific Escaped Shopper study.
Every extra bit of cash you pay for a car, which is a depreciating asset, reduces the amount available for investment in appreciating assets. To stay within the prudent limit, says an Axis Bank official, ?40 per cent of the annual income can be allocated towards car buying?.
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