Spurt in car sales: Is it the right time to buy a car?

Buying a car can be a big decision especially if it is your first purchase.

Is there a season to buy a car? Of course not, if it is an immediate need.

But for those who are looking out to get the best deals and can wait for it, there is a perfect timing for a buy.

Is this that right time?

Buying a car can be a big decision especially if it is your first purchase. You may get many recommendations to buy a car in December, as you may get handsome cash discounts.

But, within the span of just a month, the car model changes and so there is a considerable depreciation in price when you sell it.

There are some other factors too to consider while making a buy, like price trends, availability of good loan schemes and dealer schemes.

Here are some factors that can help you decide whether now is the right time to buy that car you’ve been eyeing.

Interest rates are dropping

With Reserve Bank of India cutting the repo rates for the third consecutive time this month, banks are now extending the rate cut benefit to consumers.

So if you are one of those looking to ink a car loan agreement, this period can be a good window of opportunity.

Banks and non-banking financial companies have started reducing their car loan interest rates because of a constant decline in the RBI repo rate.

For instance, Federal Bank has reduced its base rate by 25 basis points to 9.95per cent effective from June 18, 2015. So, the automobile loans of the bank are likely to come down from the current level of 10.95%(BR+0.70%) to 10.65%.

Similarly, SBI has announced reduction in interest rates on car loans by 25 basis points for women loan borrowers, making loans available at 10.25%.

With more banks announcing reduction in rates, car loan rates are likely to come down for majority of banks and NBFCs.

For a common man, any saving on the car loan equated monthly installment can translate into major savings when compiled annually.

This is especially because a car is a depreciating asset and any amount you are paying for it additionally is adding to its cost.

New models promoting growth in automobile sales

The monthly sales data released by the major automobile companies as on1st June shows that car sales have been improving with a special focus on all entry level models.

Testimony to the fact that all major car manufacturers have managed to increase sales can be gauged from the fact that market leader Maruti Suzuki India Ltd sold 102,359vehicles in May this year which is 13% more than what it sold in the same month last year.

Automobile market analysts are optimistic that the possibility of a further repo rate cut as well a normal monsoon season may increase sales even further.

Easy availability of car loans

One of the main reasons why one should be thinking hard about going in for a car loan today is the easy availability of automobile loans. HDFC Bank with a 32 per cent market share in the car loan segment has come out with a new biometrics technology to disburse automobile loans in30 minutes.

The technology links the applicant’s Aadhaar card number, making it easier for the bank to facilitate automobile loans.

HDFC bank has already successfully disbursed about 25,000 car and two-wheeler loans with this technology in the last two months.

Discounts galore

With car sales coming out of slumber, banks and non-banking financial companies are offering discounted schemes galore to gain the maximum advantage of the buyer rush. Various banks are offering different schemes to attract car loan applicants.

Punjab National Bank is offering full waiver of upfront or processing fees and documentation charges on all new car loans.

If you are a woman buyer seeking to take a car loan, State Bank of India is offering car loans to women borrowers at concessional rate. Under the current scheme all 'HerGhar' women home loan borrowers can get a 'Her Car' loan at reduced rate of 10 per cent.

Three essential things to note before making a car purchase:

While the timing is right to take up a car loan, it is important to make sure that one is able to repay the likely car loan EMI without stretching one’s budget.

Consider a higher down payment: Car loan interest rates may be lower today but it is still important to consider paying a larger down payment upfront if you can manage it. Paying a higher down payment makes sure that your total loan amount is low, which in turn leads to a lower interest payment each month and a reduced EMI.

Consider lesser tenure: The more your loan tenure, the more interest you are paying. Banks may offer car loans for up to 7 years, but if you can manage the EMI, always choose lesser tenure.

Compare car loan quotes: It is always a good idea to compare the offerings from multiple banks before picking the right one.

Know all charges: Do not finalise the car loan based on the interest rate of the loan. Make sure you are aware of all hidden charges including prepayment or foreclosure charges amid others.

With interest rates for car loans dropping and launch of new models from car manufacturers, the buzz is back in the automobile sector.

With chances of a possible further rate cut and a good monsoon, things arelooking rosy for all prospective car buyers.

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Photograph: Reuters