THE
FINANCE SCHEME PRODUCT RANGE:
If you
have been shopping around for car finance schemes for sometime, I am sure
you must by now be submerged under a plethora of schemes that financiers
have offered you. Financiers consider it fashionable to brand their schemes
but at the end of the day they are all concocted by cleverly mixing the
various scheme parameters and documentation requirements that I have mentioned
in the earlier sections. Some of the popular packaged schemes are:
Margin Money Scheme:
This is a basic car finance scheme where the finance amount/principal amount
is less than 100% of the value of the car (typically 85%).
Instalment in Advance Scheme:
Instead of collecting high margin money / down payment financiers often
collect a certain number of instalments in advance so as to preserve the
LTV. 100% value of the car is taken, interest charged on it and instalments
worked out on the same. Usually 2 to 5 instalments are collected in advance.
This would be adjusted against the last few instalments. In a three-year
loan, if four instalments are collected in advance, then you repay only
32 instalments.
Stepped Schemes:
In a stepped scheme the instalments progressively increase or reduce from
year to year. There could also be a combination of step-up and step-down
instalments. This type of scheme works best for salaried employees where
there are predictable movements in disposable income.
Balloon Scheme:
This is a scheme where you take finance only for a certain value of the
car, say 85% and the balance 15% is paid at the end of the contract as a
bullet payment. Such schemes result in lower instalments and are usually
offered by financiers who have direct tie-ups with manufacturers or dealers.
Security Deposit Scheme:
A certain percentage of the value of the car is taken by the as a security
deposit. The financier funds 100 % of the value of the car and the interest
and instalments are calculated accordingly. But although the financier is
funding 100% of the value of the car, his exposure is lowered by the amount
collected as security deposit. The security deposit could be interest bearing
or non interest bearing and is refunded to you at the end of the contract.
No Income Scheme:
Such schemes are sanctioned without you requiring to give your income proof
as listed above. Although this may sound great, the flip side is that the
amount financed is much lower (around 50%) than what you would have got
funded had you submitted the income proof. The other documentation is nonetheless
mandatory.
Relationship Offers:
These are special schemes offered by financiers, especially based on the
relationships that you have with them, by virtue of being an existing customer
or a customer of any of their other products. This usually entails a reduction
in the interest rate, or an extended tenure.
THE FINANCIERS:
The various players offering car finance schemes can be categorized under
two broad heads namely
• Banks
• Non Banking Finance Companies (NBFC)
Usually Banks have an advantage in sourcing cheaper funds and are hence
able to offer better rates of interest than NBFCs.
Several of the financiers have tied up with manufacturers to offer competitive
finance scheme on the respective manufacturers' products. It is through
tie-ups like these that manufacturers pass discounts to the end customer
that finally translate into a lower instalment payments.
Almost all financiers have tie-ups with Dealers because the dealership is
the place where 90% of the finance enquiries originate. To promote sale
or to liquidate stocks, dealers offer discounts to financiers with whom
they have tied up who in turn pass it to the customers in the form of reduced
interest rates.
It would be a good idea to avail of schemes either from a financier who
has a preferred financier tie-up with the manufacturer whose car you have
chosen to buy or a financier who has a tie-up with the dealership from which
you are purchasing the car. Making it even easier for potential car buyers
some manufacturers have floated car financing arms. A manufacturer by virtue
of his size can mobilize cheap funds and hence give you a good deal provided
you are buying one of their models.
Most retail banks and leading financial institutions offer car finance schemes.
Interest rates vary fom 14% to 16%. But remember - these rates are only
indicative to give you a flavour of the market. A bit of negotiation can
help you reduce interest rates by as much as 2%! Some hard bargaining and
leveraging your banking relationships can go a long way. |
