New Delhi With the auto loan rates hovering between 12-14 per cent, most of the car buyers are sticking to cash deals rather than carrying the burden of long-term EMIs on their head.
Lenders have also quietly increased processing charges for car loans. "Earlier we used to charge 1.5 per cent as processing fee, but now we have been told by ICICI Bank that the same would be 2 per cent," ICICI Bank's DSA (direct selling agency) says.
Thus it is indeed wiser to break those fixed deposits and long-term savings to get your favourite car since paying cumulative interest- rates on loans turns out to be an uphill task in the end.
Interest on FDs is taxable, which drags down an 8 per cent pre-tax return to a measly 5.6 per cent post-tax. So, at the end of five years, you stand to get back, after tax, Rs 6.57 lakh. If you get your car financed, at an interest rate of 12 per cent, you will be paying Rs 6.67 lakh. In other words, after five years, you are effectively poorer by Rs 10,096.
Young professionals bound by a fixed budget of Rs 2.5-4 lakh most of the times opt for small, fuel-efficient cars ranging between a Maruti Alto and a Santro Zing—stretching it little further may get you a Hyundai Getz or a Wagon R.
Whatever be your pick, shelling out say Rs 2.5 lakh in one go is still better than paying over Rs 5 lakh (cost plus the interest rates) spread over a tenure of 5-7 years. When you buy a car on long-term EMI plan—the car’s value is depreciated already by over 70 per cent, by the time you know it’s yours.
Car buyers are showing increasing interest in preferring to borrow a personal loan than a car loan. According to a SBI spokesperson, a personal loan from SBI can be availed at 12.75 per cent, while car loans for up to 3 years can be availed at 11.5 per cent and goes up to 12 per cent for a seven year loan.
With inputs from agencies
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