Time for a Drive

THE Indian automobile industry is set for a boom with car finance rates showing signs of further climbdown in the forthcoming festival seaso...

THE Indian automobile industry is set for a boom with car finance rates showing signs of further climbdown in the forthcoming festival season. While public sector banks are charging prime lending rate plus 2 per cent for their car loans, private car finance companies are slightly expensive but then they score on customer services.

8220;With the PLR coming down every quarter, a customer can expect the car loans to become cheaper in the next two quarters,8221; says a Corporation Bank official. As interest rates have now fallen to the 10 per cent levels, car sales have revved up by almost 15 per cent during the April-August period. On top of falling interest rates, dealers have started offering discounts from their margins and other freebies.

According to the JD Power Consumer Financing Satisfaction CFS study, four out of every five new-vehicle buyers in India obtain some type of financing to fund their purchase. The study adds that customers who obtain their loans from a nationalised bank continue to be relatively more satisfied, on average, than those choosing a non-banking finance company or a foreign bank. Remember NBFCs and foreign banks are ruthless and they will tow away your car if you do not re-pay your loan in time.

Tips for car loan buyers

Bargain hard for better interest rates.
A good credit history and a gold credit card can fetch you a
discounted car loan.
Never delay your installments as it can spoil your credit profile.
Dealers work on monthly targets so you are more likely to get better discounts at the end of the month.
Many PSU banks have loans to professionals as part of priority sector lending and offer attractive discounts.
Never take a loan from a company against whom consumers have protested in the media.
Ask questions about interest rates.
Do not entertain direct selling agents who keep calling you for
selling loans.
Do not default. Foreign banks and NBFCs will tow away your car if you default.

While taking a car loan make sure that you are aware of the various rates floating around. Financiers want to sell you the loan which would increase their bottomlines but not yours. First, ask the financier about which interest rate is he applying8212;whether it8217;s a flat rate or the reducing balance rates. Most of the PSU banks are offering the reducing balance rates but not the private financiers. Take for example, suppose you have taken a loan of Rs 3 lakh at 10 per cent interest. You repay Rs 25,000 in the first installment. If the 10 per cent interest continues to be applicable on Rs 3 lakh even after your first repayment, you are paying a 8216;flat interest rate8217;. But if 10 per cent interest is applicable now on Rs 2.75 lakh, you are paying a 8216;reduced balance interest rate8217;.

In 8216;zero8217; per cent schemes you are not charged any interest and you are supposed to pay the principal amount. However, be careful to check out the hidden costs under such schemes. There are some disadvantages in this scheme like amount financed are too low and the tenure is not more than a year.

Remember a used car carries a higher asset risk for financiers than a new car. Therefore, interest rates on used car rates are higher by almost five to six per cent. So where do you go to take the loan? Analysts say if you are ready to take on the red tape and bureaucracy but a relatively cheaper loan, go to the nearest PSU bank. If not, private financiers will always come to your home. Says Sanjay Ralhan, senior analyst and account director at JD Power Asia Pacific: 8216;Today, only one in three auto finance customers ends up paying an interest rate of 12 per cent or more, compared to nine out of 10 customers in 2000.8217;

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The JD Power study finds that HDFC Bank ranks highest in consumer financing satisfaction with an index score of 776 out of a possible 1,000 points maximum. HDFC Bank records above-average scroes across all four factors driving customer satisfaction with the new-vehicle financing process. These four factors are: application process, approval and documentation, finance advisor and loan value.

8216;HDFC Bank has been consistently improving its performance in each year8217;s CFS study,8217; said Ralhan. 8216;HDFC Bank achieves the top ranking in 2002 by focusing on what is important to the customer8212;improving the ease and speed of the loan application and approval process.8217;

ABM Amro and ICICI follow HDFC Bank in the rankings. Kotak Mahindra Primus and American Express are the other finance providers with scores above industry average. 8216;Our data reveals that the gains in satisfaction correlate to an increasing willingness to recommend the finance provider and reconsider the financier for repeat business. Financial institutions must improve the financing experience in order to reap the benefits of customer advocacy and loyalty.8217;8217;

Simultaneously, car companies are launching new models almost on a weekly basis. The options are wide. Maybe it8217;s time for a good drive in your dream vehicle.