I've noticed a lot of facts as well as myths being discussed about banking on this thread. Let me add my 2 cents (benefits of being a banker) as well as support/criticize some of the facts and myths discussed here.
First of all, let me clarify how a auto loan is computed over its life period in a private bank/NBFC vis-a-vis a PSU bank.
In a private bank/NBFC, most auto loans are given out on a ballooning interest basis. This means that while your EMIs are the same over the lifetime, in the first 1-2 years the majority of your EMIs consist of interest, with a meagre portion consisting of principal. In the later years, the focus shifts towards majority principal repayment.
On the other hand, in a PSU bank, an auto loan is treated as a normal commercial loan. Principal repayment is equated over the lifetime, and interest is charged at a pre-agreed rate or the prevalent interest rate (depending on whether you've chosen fixed or floating) in each year.
Confused? Ok, lets suppose you've taken 2 loans of Rs 600 from SBI and HDFC for a period of 5 years eachfor 12pct pa. Your EMI is said to be Rs 11.20 per month.
While computing, SBI has first broken down your principal repayment into Rs 120 per year. Then it has charged interest at the prevalent interest rate (12pct). So your yearly repayment has come to Rs 134.4, or Rs 11.20 per month. At the end of first year, your principal outstanding is Rs 480, and interest outstanding is Rs 57.60
Conversely, HDFC is also charging you Rs 11.20 per month. But in the first year, although you've paid the same 134.40, you'll find out your principal outstanding is Rs 510 (approx), and the extra Rs 30 has been paid as interest.
Disclaimer: SBI & HDFC have been named only to illustrate the example of ballooning vs straight interest calculation. It has no relation to the specific repayment workings of said banks!
Now for the facts and myths:
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Originally Posted by Axe77 If you are looking to prepay the loan sooner, it may be a good idea to get the break up of the EMI schedule up front from the shortlisted banks. That way, you can actually see at any point in the loan life cycle how much has been allocated towards principal and how much towards interest (regardless of the claimed interest rate being applied). While claimed interest rate is important, its equally important to check how much amount in each EMI is being allocated towards Principal. |
Very advisable to get EMI schedule if you're availing the loan from private bank. It wont make much difference if you're availing loan from a PSU bank.
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Originally Posted by Axe77 As for HDFC, I've decided to completely steer clear from the pvt banks after my last experience with HDFC. On my last car loan, I prepaid HDFC with about 6 EMIs left. I dont know what kind of computation HDFC applies but the amount they asked me to pay as prepayment was actually a little higher than the total amount I would have paid as 6 EMIs had the loan simply carried on normally. That's sounds like highway robbery to me. |
The extra amount you've paid is due to 4pct Prepayment penalty that most private banks charge.
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Originally Posted by MileCruncher She was told that she could get upto 100% of the Ex-showroom price of the car but when we applied, was told that they will do only 80% and that too as a special case as it was Jeep being bought by a woman (Weirdest reason I have ever heard). |
That 100pct pre-approved loan is a bunch of crap. In any case they will do a fresh credit analysis on you once you avail a fresh loan.
The only reason they call it "pre-approved" is because the customer is pre-approved, not the loan
. She being an existing customer, the KYC (Know your customer) norms have been completed for her - as far as confirming her identity, address and income details (if applicable) are concerned.
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Originally Posted by MileCruncher During our purchase process one thing we realised that one should get the process done themselves wif they want the best rates esp with Pvt Banks. Getting a car financed through the PVT Bank dealers attached to showroom means paying slightly extra than the actual rate. |
When you avail a loan from the bank person sitting at the dealer, the latter claims a small share of the pie called "Finance Payout". To compensate for this, the bank charges a small premium (say a 0.25pct higher interest rate or a Rs 4000 upfront sanction fee) from you. Easily waived off if you keep insisting.
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Originally Posted by MileCruncher Also one thing that I have noticed is that even if you approach PVT Banks directly, they don't take your case and would pass it on to their DSA's. |
Please note that customer service executives in any private bank branch are trained only to handle regular (deposit/withdrawl) retail queries. Auto Loans is entirely a separate department. If you approach a branch of a private bank, they only pass on to the DSAs who in return get in touch with the actual auto loans people. Sad result of super-specialization!
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Originally Posted by MileCruncher Please note that SBI does maximum upto 85% of OTR cost minus any discounts whereas private banks will do only upto 80% of the Ex-Showroom Price of the vehicle(discounts don't matter), pre-approved loan or not. Also the hidden charges and other clauses make it a customer's nightmare. |
Not correct. While it is true that only SBI extends finance on OTR while private banks finance only Ex-showroom, the rates you've mentioned are not concrete. I know someone who has availed 95pct on OTR from SBI, while I myself have availed 95pct of ex-showroom from Tata Finance for my car.
And dont think there is any relaxation that bankers give to bankers! Quote:
Originally Posted by MileCruncher Another good feature with SBI is that you can choose your EMI date |
Yes, absolutely. SBI has a very flexible system where you choose which date you start your EMI, and adjust for any overdue interest upto that date.