Finance Balaji Automobile

Papers Required For an Auto Loan

Gone are the days when people would dip into their cash reserves and savings to buy vehicles. Almost all Ė both individuals and companies Ė prefer to buy vehicles on instalments, because that allows them the liberty of not having to invest a huge amount upfront. Thatís the need gap being filled by almost all banks and financial institutions, who now offer auto loans on lucrative terms to consumers, egging them to fulfil their dreams and aspirations, just by paying some extra interest. According to industry estimates, in the last few years alone, 60% of vehicles were bought through finance deals. Two-wheelers, being cheaper, had a smaller share in the auto loans market.
With more and more attractive car and two wheeler brands and models jostling for the consumerís attention, banks and financial institutions, are also falling over each other to offer the most customer-friendly loan schemes, which can suit even the most humble earnings. Thatís what creates an embarrassment of riches Ė a confusion over which bank to choose and which loan to opt for. Here are some handy tips and comparisons, which will help you decide whom to go to and for what, depending on your needs and priorities.

  • Step 1 :- The first step that is essential is to choose a vehicle of your choice and find out its manufacturer, model. Also, donít forget to find out the nearest distributor for your convenience.

  • Step 2 :- Vehicles look jazzy on websites and in showroom. But can you afford it with your income? Make a fair assessment about how much money will you able to pay back each month if you were to go for an auto loan. This would prepare you to approach auto finance companies. Donít forget your vehicleís running expenses though. Fuel isnít cheap anymore!

  • Step 3 :- You may love the vehicle your neighbour drives, but its price tag may just be too hot for you. Settle for a bunch of options, whose price tag is within your reach. Donít forget, there are a whole set of paraphernalia expenses involved in the purchase of a vehicle, which can sometimes throw your budget out of gear.

  • Step 4 :- What Are My Priorities? :- You may be able to afford an auto loan of Rs 5 lacs, but paying an equated monthly instalment (EMI) of more than Rs. 12,000/- could be stressful. On the other hand, you may want to save on interest rates, even if the EMI is a bit steep, because you stand to gain in the long run. Figure out whatís more important Ė convenience of payment terms or lower interest rates?

  • Step 5 :- Now that you have made up your mind that you will take your loved ones out for a spin within a week, check out who offers what, and which one is best suited for you.

  • Step 6 :- Add Extra Expenses to Cost of Vehicle. Do not forget to add the charges for vehicle maintenance, fuel, interest and insurance rates to the cost of vehicle. The gross is what the vehicle costs you.

EMI and Monthly Rental System

Now you have decided to take the loan. But the question remains, Whom will you take it from? On what accounts will your decisions be based?
The usual, average loans are paid back with interest, in Equal Monthly Instalments or EMI as they are popularly known. An EMI is a constant sum of money that is paid each month for a pre - specified number of months. An EMI is divisible in 2 parts:

- Interest for one month on the principal amount which is outstanding at the end of the previous month, and

- A further repayment of the principal.

For example, if you took a loan of Rs.1 lakh repayable in twelve months at the rate of 16% p.a., the EMI would be Rs. 9,073/-. In the first month, Rs. 1,333/- of this would be interest (being the interest on Rs. 1 lac at 16% for one month), and the remaining Rs. 7740/- would go towards principal repayment, thereby reducing the principal to Rs. 92,260/-. So, for the second month, interest will be Rs. 1,230/- (being the interest on Rs.92,260/- at 16% for one month), and the remaining Rs.7,843/- would go towards principal repayment and so on.

The loan may be paid back by either the monthly rests or annual rest method.

In the monthly rest system, the interest for each month is charged on the principal left at the end of the last month.
An example would better explain the annual rest method. Suppose you have taken a loan of Rs. 2 lakhs. In the first year, you have repaid Rs.20,000/- of the principal. In the next year, your interest will be calculated on the remainder of the balance and not the entire 2 lakh.
Whatever amount you will have paid during the course of that year will only be taken into account at the end of that year, and not before. Therefore, it is called the annual rest method.