How to choose a car loan that's best for you

Every year the festive season brings a lot to cheer about including fabulous car purchase offers for the picking!

Most of the banks and NBFCs lure consumers with interest rate discount of 0.25 to 1 per cent on car loans. The dealers also offer good cash discounts and freebies at this time. However, you need to sift through the offers and bag the deal that ideally suits you.

Schemes and freebies on offer

Financial institutions, retailers, and dealers are busy rolling out offers to attract customers. Financial institutions offer lower interest rate loan and/or reduced processing fee while dealers and retailers offer outright discounts, cash back guarantee, and freebies.

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Since this period is also considered auspicious, most of the consumers look forward to schemes to avail the discounts and savings. This offer spree sometimes starts in Aug-Sep and goes on till the end or beginning of the New Year.

Retailers and dealers offer discounts of 5 to 15 per cent of the price.

Sometimes, they offer freebies such as music system, car cover mattress, Teflon painting, or other accessories with the car.

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Finding the best deal

While there are plenty of deals, you should educate yourself and scout for a suitable deal.

Choose the car

First and foremost, choose the car you want to buy and then decide upon your budget. This should be based on your affordability as well as requirement. Have a list of at least 2 cars in the similar price range.

Scout for a loan

Then scout for the loans being offered by different banks. You should also fix the tenure of the loan. This will help you compare loan deals offered by various banks. Some banks may give you loan at lesser interest rate but charge high processing fee.

Some banks may give you little higher interest rate and may not charge processing fee at all. Look at both the options and calculate the final cost of loan before choosing an offer.

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Sometimes dealers offer loans through the banks with which they have tie-ups for a loan. This may sound like a good proposition in the beginning but you should check the rates and compare against rates in the market.

While choosing your loan offer, you should also check the prepayment charges. The prepayment charges are pretty high on car loans (as much as 5 per cent).

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Discounts on offer

Some dealers offer discounts and some offer freebies. The deals may vary from make and model of the car. Instant discount is always the best option as it generates immediate cash flow.

Freebies can be deceptive in nature. Most of the time buyers do not have any idea about the price of freebies. It will help if you do some research to find out the prices of items which are given as freebies. This will help you negotiate a better deal.

At the same time, look for the options where you can exchange freebies with cash back or discount. In most of the cases, freebies are not of high quality and you end up buying those again eg. stereo system in the car. If, instead of freebies, you can get money back, go for it.

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Look for special discounts

Look for special discounts schemes on top of the discounts. Special discounts are given to some specific segments of people such as students, defence personnel, specific company professionals, and sometimes to women buyers.

See if your company has tie ups with banks or dealers to avail cheaper loans.

Other options

You can also check with your bank for any scheme for existing customers. If you have a good credit history, you can get better deal with your bank.

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Best time to buy cars

Usually the best time is between September and January as most of the festivals fall in these months.

If you are not concerned about year or the make of the car, you can also consider buying it in the month of December as the dealers are ready to sell the inventory of last year and stock the cars for the coming year. You might get a good discount of about 10 to 15 pc.

You can also look at the month of March as this is the time when dealers have to close the accounting and they want to sell as many as possible to improve their sales figures.