As we succeed in life and achieve new milestones, we reward ourselves with better things. Buying a car is one such thing, and most of us look forward to it. However, it is not essential that you must have the entire amount to fund the car in your pocket. Based on certain conditions, banks in India are more than willing extend a car loan to finance the major share of the car's cost. Getting your dream car is now very easy with a good car loan.
A secured loan
Beginning with the basics, a car loan by nature is a secured loan. In simple words, the vehicle or car you are buying will be the collateral or security for your loan. Until you complete the loan repayments, your lender will have complete authority over the purchased car. So to avoid any inconvenience, it is essential that you follow the repayment schedule strictly.
The margin money or down payment
Whenever you go out for a car loan, there is some amount (usually 15% to 30% depending on the car model and bank), which has to be paid up front to the car loan company. This amount is called the margin money or the down payment. So, if you want to buy a car whose cost is Rs. 5,00,000 the bank will ask you to deposit anywhere between Rs. 75,000 to Rs. 150,000 as the margin money or down payment.
Car loan on ex-showroom or on road prices?
Some banks like State Bank of India provides car loans at On Road Prices. This means that the loan amount sanctioned for your cars will contain the ex-showroom price of the car plus the insurance, the road tax and any other amount that is required. The car loan amount in case of On Road Price will be significantly greater than the Ex-showroom price of the car. Let us take an example.
Suppose you want to buy a car which has an ex -showroom price of Rs. 5,00,000. To insure this vehicle you have to pay Rs. 18,000, and for the road tax you have to pay Rs. 4,000. Thus the total cost of ownership of this vehicle is Ex-showroom price plus insurance plus road tax, that is Rs. 5,22,000. So, if you get a loan from bank which gives you car loan on Ex-showroom prices you will have to pay the Insurance and Road tax from your pocket. If you get an On Road Price car loan you won't have to pay this amount, instead it will be clubbed in your car loan.