Is this a good deal? Are all the figures consistent i.e does the EMI as per the rate quoted ? Well, to answer these questions you need to know what the various components of a finance scheme are and in all likelihood you will have to decide on all or some of them before you finalize your deal. So in this section we will delve in detail into the components of a finance scheme.

Finance Amount - This is the principal amount that the financier is ready to fund you for. The financier arrives at this figure depending on your profile (income, repayment track record etc) and also the car that you intend to acquire (resale value of the car). For a lease transaction, the finance amount cannot be less than 100% of the value of the car.

Down Payment - This is the difference between the value of the car and the finance amount. The down payment has to be paid by you to the financier at the initiation of the scheme. This is also called Margin Money by some financiers.

LTV - The Loan To Value is the ratio between the Finance Amount and the value of the car, represented as a percentage. The LTV usually varies from 60% to 90%.

Flat Rate of interest - This the simple interest rate (annualised) on the principal. This can be calculated using basic school level mathematics. In the case of the above scheme the flat rate is 8%.

Internal Rate of Return - the rate of interest charged on the principal, when calculated on a reducing balance basis is known as the IRR. Although IRR is a more accurate measure of what is being charged to you, it is somewhat difficult to calculate on the fly. You will require tools like a financial calculator or Excel worksheets to determine the IRR of a particular scheme. However one rule of thumb is that for any finance scheme the IRR is approximately 1.8 times the Flat Rate.

Tenure - This represents the length of the financing arrangement usually expressed in months. The financier arrives at the tenure based on your profile (stability of source of your income and your ability to pay) and the type of car you have chosen (based on the obsolescence and resale values)

Periodicity of payments - Represents at what frequency you make payments to the financier to repay the principal and the interest amount over the tenure of the financing arrangement. The options are Monthly, Quarterly, or as customized by the financier to your requirements.

Payment in arrears or advance - Once the periodicity of payments if fixed, you should know whether the payment is due at the beginning or at the end of the agreed period, i.e. at the beginning of the month or end of the month in case you have agreed on a monthly repayment scheme.

Terminal Value - This is relevant only in case of a lease transaction, and is essentially the value at which the financier agrees to take back the car or sell it to a third party at the end of the lease tenure.

Security Deposit - Sometimes financiers take a deposit from clients as security. This is done when the transaction is perceived to be risky. But more often than not, financiers reduce interest rates in case you give them a security deposit. The security deposit could be interest bearing or non interest bearing depending on the scheme offered by the financier.

Instalments - Based on all the above, the financier arrives at what you need to pay them at the periodicity decided over the tenure of the scheme towards clearing the finance amount and the interest charge. In case all the instalments are equal and paid monthly, they are called Equated Monthly Instalments (EMI).

Other Charges - Depending on the nature of financing, the scheme will attract additional sales tax, turnover tax, value-added tax, stamp duty, etc. depending on the state in which the agreement is being executed. This amount is borne directly by you and often clubbed with the Down Payment.

Pre-closure charge - Some financiers levy a penalty called pre-closure charges, in case you repay the amount due before the agreed tenure. It would do good to clarify this point with the financier, in case you intend to clear the outstanding well before the final due date.

Whew, that's quite a few parameters to decide on. But spending time to decide on each of them and negotiating with your financier on the same right at the onset will ensure that you get the best deal and also peace of mind throughout the tenure of the scheme.