Loan interest rates too high!

[drpullockaran]

I believed I got the lowest rate of all at 6.23 percent diminishing from ICICI. The 6 percent by Zappo beats my rate though. I believe though that Zappo would not have got a 1 lakh reduction for a brand new GTX which I managed by fibbing to them about me getting the car from a neighbouring state. During the same period my friend got a 9 lakh loan for his new car at an unbelievable rate of 4.8 percent. I still do not believe him but it seems the dealer pays of the bank too which was news to me then. I hear it is normal practice for dealers to pay off from their margins to the bank to get the lowest possible interest rates.

Difficult time to take a new loan for anything.
Bye and wear your seat belts.

[ramki067]

Hi guys,
Just now ICICI bank contacted me and they are offering 7.32% reducing interest rate for a 5 year 3.50 lakh loan. They are quoting 95% amount of ex-showroom price which comes out at 3.5 L for WagonR Vxi. The EMI per lakh is 2310. Is it ok...Any tricks out here. what say guys?

[spadival]

Well.. How many people actually go for a car loan?? I guess lots because, when I bought my first car and offered to pay the entire amount, the dealer's jaw dropped and he had a shocked expression on his face.

IMHO, it does not make financial sense to take out a car loan and spend it on a depreciating asset. Its ok for businessmen because part of the cost is absorbed by income tax deductions. I guess the American culture of borrowing has slowly seeped into our mindset.

[Zappo]

Originally Posted by spadival

Well.. How many people actually go for a car loan?? I guess lots because, when I bought my first car and offered to pay the entire amount, the dealer's jaw dropped and he had a shocked expression on his face.

IMHO, it does not make financial sense to take out a car loan and spend it on a depreciating asset. Its ok for businessmen because part of the cost is absorbed by income tax deductions. I guess the American culture of borrowing has slowly seeped into our mindset.

No, there are many other good reasons why people take a loan. It does not necessarily needs one to be a businessman to really take advantage of a loan.

1> While you may be blessed enough to be able to pay a jaw dropping price in an all cash deal most others are not so lucky. People probably pay some amount from the pocket rest they pay through EMIs from their regular monthly income. For them that is the only viable solution.

2> Nowadays it is better not to pay cash upfront as you immediately figure in the month end list of cash paying customers that is compulsorily sent to the IT dept. Other ramifications being your bank also flags you (provided you took the money out of your accounts and not from behind some tiles in your bathroom ) and sends a report to the IT people. Any withdrawal of 50k and above in a month is reported to the IT dept if I am not wrong. They may also place additional unpleasant surveillance on your accounts to check fund movements (RBI guidlines for tracing Hawala money etc.)

3> With the cut-throat competition dealers/manufacturers now absorb a good part of the interest to induce you to buy a new car. For Maruti and Hyundai's models (select ones) you get a loan at some 7.5% interest rate. Now if I take at that rate for 5 years and park the available fund in a FD for 5 years with any bank I stand to earn some 10-10.5% rate of interest. Makes sense, right?

[csentil]

Originally Posted by ramki067

Hi guys,
Just now ICICI bank contacted me and they are offering 7.32% reducing interest rate for a 5 year 3.50 lakh loan. They are quoting 95% amount of ex-showroom price which comes out at 3.5 L for WagonR Vxi. The EMI per lakh is 2310. Is it ok...Any tricks out here. what say guys?

I just checked with an EMI calculator. For 7.5% interest on a 5 year loan, the EMI/lakh is 2004/-. To get an EMI of 2310 the interest rate has to be 13.5%. I think he's quoting a flat rate. No way someone's going to give you a reducing interest loan for 7.5% and that too from ICICI.

Check out this link.
EMI Calculators

[csentil]

Originally Posted by spadival

Well.. How many people actually go for a car loan?? I guess lots because, when I bought my first car and offered to pay the entire amount, the dealer's jaw dropped and he had a shocked expression on his face.

IMHO, it does not make financial sense to take out a car loan and spend it on a depreciating asset. Its ok for businessmen because part of the cost is absorbed by income tax deductions. I guess the American culture of borrowing has slowly seeped into our mindset.

You mean to say that people have enough money to pay the entire amount for a car? :-) Among the salaried class it is not easy to do that.

I agree with the car loan and depreciating asset point, but cars cannot be looked upon as an asset which will fetch you tangible returns. There are a lot of intangibles for which you cannot easily attach a monetary value (though this has also been done for study purposes).

Its not IT that dictates most people's choice of taking a loan. Its necessity.

[ramki067]

Originally Posted by csentil

I just checked with an EMI calculator. For 7.5% interest on a 5 year loan, the EMI/lakh is 2004/-. To get an EMI of 2310 the interest rate has to be 13.5%. I think he's quoting a flat rate. No way someone's going to give you a reducing interest loan for 7.5% and that too from ICICI.

Check out this link.
EMI Calculators

Thats True csentil! It work out to be 13.5%. Then how did he tell its 7.5%? and that too reducing and he said we can pay full amount after 6 months with 2 to 3% penalty of the remaining balance. I don't understand!

[vishaltanksale]

Originally Posted by ramki067

Then how did he tell its 7.5%?

Ask him if it is Monthly reducing...
Monthly reducing balance is the standard.
But these finance comanies use different methods like flat rate, Yearly / Quarterly reducing balance, resulting high EMI even at low interest rates.


I always use Excel to verify this. Excle has "Loan Amortization" template with Monthly reducing balance.

Here is how you create:
1. Insert new worksheet, by Right clicking on existing worksheet
2. Selct "Spreadsheet Solutions" Tab
3. Click on Load Amortization option
4. Insert all required details and your EMI is ready.

[csentil]

Watch out with ICICI. I think there's an entire thread dedicated to ICICI and their "ways" of getting customers.

Look at it logically. Loan Interest rates have crossed 11% for car and housing. Max someone could offer is 11% and if its lesser probably because they have a tie up with the car dealer. Always double check. Take a paper with you with EMI's / lakh for 3/4/5 years written down. So you can cross check with what these guys say. Check different banks before you decide. SBI gives for 12.25%. UTI 13%. Corp Bank was 12% I think.

[spadival]

Originally Posted by csentil

Its not IT that dictates most people's choice of taking a loan. Its necessity.

Yeah.. what u have said is true. BTW, I have bought 2 cars (without selling either of them) with cash on both AND I AM a salaried "class" . Anyway, lets get back to the topic of finding that cheap car loan, if it exists at all nowadays!!

[Zappo]

ramki... what ppl are saying is true. However its not difficult to get that rate probably. Check with the dealerships. Hyundai is everyday advertising for 7.99% whereas Maruti is giving it at 7.5% rate. Of course you do not get any other discounts etc. The dealers, manufacturers together pay a part of the interest that otherwise you would have paid. This in turn gets apportioned to the discounts that they would have otherwise given you and the remaining is adjusted as cost to the company, dealership etc...

Check these out. However that I think is only through dealerships and their banks. Direct approach won't work.

Also, people there is a small problem in our calculations. As in not problem but the way these guys do it and the way our EMI calcs do it are different. EMI calc will start the payment of the EMI one month after the loan has been disbursed. However these banks take at least 1 EMI in advance, sometimes 2. So effectively they have taken the money from you even before they disbursed the loan. Remember your EMI is the principal part + the interest. So you paid interest even before they disbursed the loan. So the actual rate goes up much higher.

[kiranpashtakar]

Hi,

The interest business is very murky, just think about it this way, the car you like is being offered for 14.5%, but check today's papers ford is offering it for 9.9% in all probabilities it could be the same bank.

Here is backoffice view, the manufacturer sometimes based on the sales offer the finance companies part of the margin, which will inturn be passed on to the customer as as reduced interest rate.

Now another parameter added to the equation, "the dealer" again the dealer will have a tie up with some banks who will offer lower interests to attract customers,

To put this in a nutshell the best way to get the lowest interest rate is

1) select the manufacture who is offering the best discount,
2) Select the right model from the product offering
3) go to the dealer who is got the right banks tied up.

Logic says you may end up with car that's not selling so well in the market, but you are getting the lowest interest rated :-)

[ramki067]

I asked them to mail me the details we have spoken and here is what they sent to me!

DEAR SIR

DEATAILS OF CAR LOAN


WAGAN R VX1I

ON ROAD ; 4,28,518
EX SHOWROOM ; 3,70,903
RATE OF INTREST ; 7.3 Percent
E.M.I ; 2312 for 60 months in advance

DOCUMENTS

1. Releaving letter of previous company
2. Appointment Letter of present company
3. 2 Latest Salary Slip
4. 6 months salary credited in CITI BANK statment till date
5. Electricity Bill Xerox (Own house Proof)
6. Ration Card (Relationship Proof)
7. Driving Licence ( I.D+D.O.B+Signature Proof)
8. 1 Passport Size Photo



From
Ashwini ICICI car finance

so... from the EMI calculator it comes to 13.71% interest rate. Then how do they tell this as 7.3%!!!

[autoenthusiast]

Whoa, and to think I got my car loan on 7.25% monthly reducing interest 4 years back.

Shuchks the current interest rates are just too bad :-(

[ad75]

ask different banks about per lakh EMI for the duration you are looking for.