Loan interest rates too high!

[rkg]

the rate quoted by ICICI is flat rate not monthly reducing.
oriental bank of commerce is charging the following rates
Car Vehicle Loan Scheme
Rate of Interest w.e.f 16.04.2007:
Upto 3 years = PLR - 1.75% i.e 11.50%
Above 3 years = PLR - 1.25% i.e 12.00%
canara bank
CanMobile (Car Loan / Two-Wheeler Loan)
w.e.f 17.04.2007
a) Car loan - 11.75% (fixed)
check the other banks esp PSU ones for better rates. bargain with dealer for discounts as you will paying full ( take loan form any bank outside not from dealer)

[reignofchaos]

I was offered 11.75% i.e. 2210 per lac on a 5 yr loan by HDFC bank after a bit of haggling. No hidden charges.

[ramki067]

Originally Posted by 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

What does fixed rate and reducing rate mean with this quote? Please help.

[Zappo]

Originally Posted by ramki067

What does fixed rate and reducing rate mean with this quote? Please help.

Very simple. A fixed rate basically is what we learnt in mathematics as simple interest. Here the principal amount borrowed is kept the same and then at a fixed rate of interest the actual interest payable is calculated for the loan tenure,

In a reducing balance system they keep reducing the principal amount with each payment of installment. Thereafter they calculate the interest due from you for the next installment. It is done in a way that the final installment figure stays the same throughout the tenure. Obviously, to do that the principal and interest components in the installment are juggled in a such a way that initially you pay very little principal but big interests but with each passing month your principal component keeps going up whereas the interest keeps going down.

Obviously the second component is beneficial to you as you would have yourself seen. For the same EMI the fixed rate looks lower than the rate under reducing balance. Put in a different way, if you were to pay the same rate of interest under both types you will pay a lesser EMI under reducing balance method.

Obviously they are taking you for a ride because they never told you that they are quoting you a flat rate of interest when the whole world calculates it under reducing balance method.

[ramki067]

zappo,
What the sales person told was we would offer you with 7.3% flat rate or 13.71 reducing rate. Which will be worthwhile...

[mobike008]

I got my car loan from SBI at about 9.5% reducing ( daily not monthly). Only govt banks offer that. Whereas ICICI and HDFC offer only monthly diminishing.

My EMI/Lakh is 2100 for 60 months.

Also, dont give the advance EMI checks, sometimes they ask for 1 or 2 months. If you give them, your interest rate shoots up easily by 1-2%

Entry in private banks is easy but very tough exit. whereas the tough entry in govt banks is worth it as the exit is pretty smooth. So decide carefully

[ramki067]

mobike,
What is daily reducing interest. How do they calculate in this matter when compared to monthly reducing?

[Technocrat]

@:ramki067 as said a by a few others & from my own experience do not get into %s offered by different banks, its much more confusing, talk about EMI per lac as thats what matters. COmpare EMI per lac for different banks & go for the lowest one

Also, dont give the advance EMI checks, sometimes they ask for 1 or 2 months. If you give them, your interest rate shoots up easily by 1-2%

I have seen 1 month advance as standard & thats what I did too. How does it increase ROI ??

[mobike008]

Originally Posted by ramki067

mobike,
What is daily reducing interest. How do they calculate in this matter when compared to monthly reducing?

In Monthly reducing, they calculate interest on the amount remaining after each month EMI is paid. Whereas, in day diminishing, they calculate interest on daily basis.

For e.g: your EMI is Rs. 3000/month, so 100 rs, per day. so they calculate on 3000, 2900, 2800 etc. Thats my understanding but, it definelty works out cheaper than monthly reducing. Ask the bank fella, he will explain in detail.

[mobike008]

Originally Posted by Technocrat

I have seen 1 month advance as standard & thats what I did too. How does it increase ROI ??

ROI : Return on investment, i dint understand what this is got to do with what we are discussing? procuring finance is not an investment, its an expense

you pay 1 or 2 month EMI in advance, meaning the whole EMI comes under the interest parlance as during the initial period the interest to principal is almost 80%-20%

[Technocrat]

OH ok yeah it does make sense, thanks for pointing

Btw can you elude that ?

As for your question

i dint understand what this is got to do with what we are discussing?

I meant interest & not ROI sorry for the typo

[caliper]

Originally Posted by Zappo

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.)

I thought the minimum for reporting was something like 3 lakh cash per day, and none for checks. At least that's what someone at Citibank advised.

Where do you get your information?

[rkg]

Flat rate: loan amount 10000, tenure 36 months. interest rate 6%.
total interest= 10000x0.06X3= 1800
total amount payable= 10000 + 1800 = 11800
EMI = 11800/36= 327 per month
reducing monthly interest means for 10000 @ 12% interest rate
EMI will be Rs 333/-
here at the end of first month the principle gets reduced by
rs 233, because for 10K for one month the interest will work out to be 100
( 10000X0.12/12). so in EMI of 333, 100 will go towards interest and 233 towards principle. so next month interest will be calculated for 10000-233=9767. it goes on like this.
in daily reducing the interest is calculated on daily basis. it is useful because one can make pre payment at any date. in case of monthly reducing the prepayment will be effective from the date of EMI not from the date one make prepayment.( for example if EMI date is 5 th of every month if one makes prepayment on 6th then principle gets reduced by prepayment amount only from next month, whereas in daily reducing it will be effective form 6 th itself)

regarding advance EMI and how it increases interest rate= if one is making advacne EMI of 2 months for loan of 1 lakh it will be 100000- 4400( @2200 EMI). so a person has actually taken a loan of 95600 but interest is calculated for 1lakh. so one ends up paying more. no PSU bank follows this method. even private banks does not follow this for home loans but only for car loans.if one is taking loan today he has to pay interest only after one month not before

[nikunj_cal]

@ GTO - I would like to upload the Excel template for Loan Amortization Schedule.
It has the following benefits :-
1)Calculate EMI for different Loan amounts and thus choose
2)Juggle between different interest rates which banks offer and thus decide
3)Know the total Interest you will end up paying
4) Know the interest element in each Installment
4)Calculate Foreclosure Charges etc.

In short a very useful template ...

[tsk1979]

Does it give the option for people to choose reducing balance/flat rate?