ARTICLE: How to get the lowest EMI & the best Finance Deal

[GTO]

With a never-ending stream of automotive launches and a plethora of financing options to choose from, it is now easier than ever before to buy a new car. Be warned, however: your urge to buy also makes it easy for financial companies to fleece you. Competition is fierce in the automotive market; be sure to use it to your advantage.

Team-BHP shows you how to get the best possible financing deal for your shiny new wheels:

1. Shop around: While this advice seems obvious, it is often ignored: getting rates from several brokers and car dealerships is the key to a good deal. If you intend to buy a Honda in Mumbai, bargain with Ichibaan / Linkway / Arya and any others. When you ask for your quote, tell the vendor that you intend to shop around and be certain that they know you are serious about buying. Casual inquiries take up a lot of time for dealers; an inquiry with good sales potential will make them bend over backwards for you.

2. Negotiate: Many people don't realize this, but if you want a great financing deal you will have to negotiate for it. Negotiate hard. Pit at least three competing quotes against each other and start bargaining with each vendor. You will be surprised at how quickly the offered equalized monthly installment (EMI) payment will drop in the course of an hour of simple bargaining. And its a LOT of fun too!

3. Targets: Start negotiating in the third week of the month. Most Indian agents have monthly targets and generally save the best rates for last minute deals to fill their quota.

4. Other accounts with the same institution: Leverage any existing relationship (credit cards, investments, etc) that you have with your financial institution. Most banks will offer a 1 - 2% discount based on the fact that you are already a known quantity to them.

5. Do not take the interest rate at face value: When your broker says that his great interest rate has been calculated "just for you", you don't have to take his word for it. Use any one of a number of online calculators to compare; chances are, your broker is bluffing.

6. Manufacturer financing plans: Some manufacturers offer financing plans that are less expensive than broker or dealership options. For e.g. the Tata finance option.

7. Nationalised banks: Nationalised banks like the State Bank of India have very competitive auto-loan packages that usually offer the best rates and terms, especially if you have an existing relationship with them. Meet with your branch manager for a quote.

8. Hidden fees: In today's competitive market there is no such thing as a processing fee for a car loan. Ask for an all-inclusive quote and check the fine print for hidden charges. These miscellaneous fees can amount to thousands of rupees. You will also see a difference in stamp duty charges etc. from one proposal to the other.

9. Do NOT opt for ECS: Even though automatic electronic withdrawal from your bank account is supposed to make life easier, the system is not yet a 100% reliable in India. Make your loan payments the old-fashioned way with cheques and read the Team-BHP forum discussion on ECS for more details.

10. Be wary of unauthorised dealerships: Even if you get a great financing offer, check to see who will be delivering your car. Some Direct Sales Agents (DSAs) have connections to unauthorised dealerships. These dealers often engage in shady practices like supplying counterfeit spares and are generally not worth buying from.

11. Pre-payment penalties: Some banks charge rates as high as 5% of the total loan amount if you pay off your loan early. Check to see if your bank included a pre-payment penalty in the contract and ask for a waiver / reduction if you intend to pay the loan early.

12. Maintain a good credit history: Financial institutions in India maintain a central database to keep track of your credit history. It is essential to keep a clean credit record by paying credit card bills and other loan EMIs on time.

13. Loan against fixed deposits: If you or your family has invested in fixed deposits, you are in luck. Taking a loan against fixed deposits leads to very lucrative interest rates, minimal paperwork (if at all) and flexible repayment plans. Banks usually give loans against fixed deposits at a +1 interest rate.

Happy hunting for the lowest EMI!

EDIT : Added a superb "Loan Amortization Schedule" excel sheet to this post; members can download the same. Thanks to BHPian nikunj_cal for sharing it with us. It will help you to calculate the EMI for different loan amounts, juggle between interest rates, calculate total interest, calculate foreclosure charges and so on.

[gonecase_01]

Nice collection.
will surely consider when buying my next car.

[tsk1979]

http://www.bankofbaroda.com/calculators/calculators.asp
This link will help you to calculate your exact EMI based on tenure and rate of interest.
you can calculate using formula too
EMI = {(p*r) (1+r)^n}/{(1+r)^n - 1}

p = principal (amount of loan), r = rate of interest per instalment period, i.e., if interest is 12% p.a. r = 1, n = no. of instalments in the tenure,Y ou can also use `Calculate EMI function' in EXCEL spread sheet.

[kailashnj]

Every banks which have their online presence also have their emi calculators.

http://www.hdfc.com/calculator/emical.asp

I have used this HDFC bank's caculators for my deal. My dealer said he is giving me a loan from HDFC bank and said that he would give me a certain emi at interest rate of 13%. When I check the site and tried out the emi calculator it seemed that the deal that he was offering me for 13% actually was an emi for 14.75%.

I brought this to his notice and we then negotiated to get the rate of interest down to 13.75% and would not come anything below that.

Man, these dealers are like sharks. Beware of them. I have also created a excel sheet to calculate but would like to know how do I post the attachement in this thread.

[RJK]

Maintain a good credit history: Financial institutions in India maintain a central database to keep track of your credit history. It is essential to keep a clean credit record by paying credit card bills and other loan EMIs on time.

I never knew the concept of credit history existed in India!

[abdriver2000]

Originally Posted by RJK

I never knew the concept of credit history existed in India!

Yes, it does. And you are punished for having a good credit history.... by having more calls from DSA's and bank offering you 'great deals' because of your good rating with the bank.

I keep getting atleast 5 calls a week from a bank asking me to take a personal loan, just because I have always paid my credit card bills on time!

[GTO]

I never knew the concept of credit history existed in India!

Research on this article showed me their data center at Churchgate. They maintain a list of bad profiles with details on the bank name, amount defaulted upon, date and end solution.

[mail4ajo]

Originally Posted by GTO

Research on this article showed me their data center at Churchgate. They maintain a list of bad profiles with details on the bank name, amount defaulted upon, date and end solution.

It is 100% true that we have credit history in India. When I took my SBI car loan, the verification guy came armed with all my previous borrowings details on my flat and my two wheeler. He even knew where the upcoming flat was located and exact details of my loan payments. I was like shot at point blank. All banks share their data to ensure that defaulters are kept at bay.

[dr fate]

nice and informative i for one found out that though nationalised banks for some reason even if you have an excellent banking record cannot match up to institutions like icici who seem to have an edge for some unforseen reason,
but one advantage is like stated above they do not have a hidden costs or any such concepts and are straight forward,
true to not opt for ecs as there it is governed and debited directly to the bankers account in the RBI through the ecs cleared bank,

here the debit happens on the given date even if it is a holiday wherein say you have given a ecs on 5th and your salary slip etc does not clear due to some holiday or any such eventualities in the SAME bank your payment bounces as the debit happens electronically without any manual interference,
in pdc case law is the same for credit or debit,and in a worst case scenario a manual interference(OD)is possible,

now this point is important to be carefull in keeping track of our re-payments and avoiding hefty penalty(bouncing)and keeping our crediblity and reletionship healthy.

[supremeBaleno]

Another nice article for the tbhp-Advice section, GTO.

A couple of questions for all the finance experts.
1) What exactly is a finance discount ?

2) Interest rates today seem to have more than doubled than they were 1.5 years ago. The finance deal that I got for my Baleno was an EMI of 17440 on a 4lakh loan for 2 years.

Today when I checked the rates for my Dad who is planning to get a Swift, the EMI quoted by the same company (GE) was 18680, which means I will end up paying 150% more in interest.

Have interest rates gone up so high as the sales guy would have me believe ?

[Technocrat]

Excellent stuff GTO & Team

Btw one more point that I would like to say from my own experience is that don’t pay much attention to what interest rates different agents tell you, I would say you should negotiate on EMI per lac. The reason I am saying this is because when my cousin was hunting for a new car The EMI per lac for loan 14% was surprisingly coming out to be cheaper than other company's loan at 12.5%.

& yes always consider how good the bank is while closing the loan because that’s where the problem is faced.

GTO not sure why ECS is not recommended as I have been using since 2-3 years now & never faced any issue or may be I was Lucky

[GTO]

GTO not sure why ECS is not recommended as I have been using since 2-3 years now & never faced any issue or may be I was Lucky

There are some members who have a good experience with ECS. Buttttttttttt a majority of complaints received have been against the ECS. Lack of co-ordination between bank departments (debit has been done, but calls for payment), insufficient fund penalty charges (even though balance was there) and so on.

1) What exactly is a finance discount ?

A discount out of the interest earnings of the finance company.

[manson]

nice article gto. i feel this would be of optimum use in the 'what car' section as it has a direct link with this article. lots of new members (even first car buyers) in that section, prospective buyers, etc, should be stickied.

manson.

[mail4ajo]

The simplest thing to do is to negotiate on the EMI per lakh, cause its very complex for us to understand what and how the interest is calculated. There is also something called "rests". Some banks charge on monthly rest, others yearly, daily diminishing, monthly dimishing etc.

All these terms and magic calculations together make buyers go nuts and end up deciding on something unfeasible. When I did my car purchase, I took a sheet of paper and wrote down the following headings:

Bank name
interest rate
EMI/lakh
max term offered
advance EMI - Yes or No
processing charges
preclosure damage
lump sum payment towards pricinpal - Yes or No
Diminishing time - monthly/yearly
Documents required
Processing time

Once I had all this on paper, I called up each banker and got the details. Then it was easy to choose my bank loan. I know this is tedious, but effective on choosing the best deal.

[navdeep]

Originally Posted by mail4ajo

The simplest thing to do is to negotiate on the EMI per lakh, cause its very complex for us to understand what and how the interest is calculated. There is also something called "rests". Some banks charge on monthly rest, others yearly, daily diminishing, monthly dimishing etc.

All these terms and magic calculations together make buyers go nuts and end up deciding on something unfeasible. When I did my car purchase, I took a sheet of paper and wrote down the following headings:

Bank name
interest rate
EMI/lakh
max term offered
advance EMI - Yes or No
processing charges
preclosure damage
lump sum payment towards pricinpal - Yes or No
Diminishing time - monthly/yearly
Documents required
Processing time

Once I had all this on paper, I called up each banker and got the details. Then it was easy to choose my bank loan. I know this is tedious, but effective on choosing the best deal.

HowTo : "negotiate on the EMI per lakh" ?