Nowadays, most of the people dreaming of buying a new car get trapped in the sweet talks of the dealer as soon as they reach the showroom. The dealer says, 'Sir, don't worry, we will arrange the loan immediately. Interest rate is also low, EMI is easy!” But the reality is different. Most dealers have tie-ups with specific banks and in exchange for commission, they charge you higher interest rates, hidden processing fees or unnecessary insurance.
outcome? Your monthly installment (EMI) increases and you have to pay thousands of extra rupees in 5 years. But now there is no need to trust the dealer. By calculating EMI yourself on your smartphone in 2 minutes, you can choose the right bank and save up to Rs 40-50 thousand. Let us know how this process can be done?
Don't fall for the dealer's words.
Car dealers often force you to take a hasty decision. They say that 'this offer will end today itself' or 'there will be a delay in taking the loan directly from the bank'. Actually they have limited bank options and they push loans from only those banks where they get good commission.
Many times they quote low interest rates but add processing fees, insurance premium or extended warranty to the EMI. For example, if you are buying a car worth Rs 10 lakh and give 20% down payment, then a loan of Rs 8 lakh is required. If the dealer finalizes the loan at 10.5% interest, your EMI becomes higher.
The biggest weapon is to calculate EMI yourself. The formula is very simple-
EMI = [P × R × (1+R)^N] / [(1+R)^N – 1]
Here P means loan amount, R means monthly interest rate (annual rate ÷ 12 ÷ 100) and N means total months.
Visit Free Apps and Websites
Now there is no need to do this math. Free apps and websites are available on mobile. Download 'EMI Calculator' app from Google Play Store or visit platforms like Groww, BankBazaar, Paisabazaar. Banks like Axis Bank, SBI or HDFC Bank also have their own EMI calculators. Just enter the loan amount, interest rate and tenure. EMI, total interest and payment schedule will be visible immediately.
Where and what interest rate?
At present, car loan interest rates in India start from 7.45%. Banks like Bank of Baroda, PNB and Canara Bank are offering 7.60% to 8.70%. SBI's rate is around 8.80%, while HDFC and ICICI start from 8.50%. If your CIBIL score is 750+, you can get a better rate. Instead of taking a loan through a dealer at 10-11%, if you take a loan yourself at 8.5%, the difference will be clearly visible. Suppose you take a loan of Rs 8 lakh for 5 years (60 months), then you will get this much benefit-
- EMI at 8.5% interest will be ₹ 16,413
- EMI at 10.5% interest will be ₹ 17,195
How to do smart calculations?
- Compare EMIs simultaneously on websites of multiple banks.
- Check processing fees (0.5-1%), stamp duty and insurance separately.
- Keep the loan tenure for 5-7 years. The total interest increases with longer tenure.
- Improve CIBIL score, close old loans.
- Negotiate with the dealer to get the loan paperwork done from the bank of your choice.