An overwhelming majority of all car purchases in India is through car loans that are easily available from various banks and other financing institutions. Despite the widespread usage of the car loan facility for buying new as well as used cars the interest rates are still quite high in India as compared to other places. When a customer finalizes the car he wants to buy it is a normal practice for the dealers to guide him to the right financier who can provide a good deal on the car loan. However very few customers realize that the discounts in interest rates offered by the financier is actually a benefits that is being provided by the car manufacturer, dealer or the agent to woo more customers.
What the Banks do?
All banks operate under the influence of the standard base rate prevalent at that point of time and hence do not have much margin in reducing the interest rates on car loans. At the best these funding agencies can offer 1-1.5% reduction in the interest rates in car loans from their side. However the trick lies in the banks utilizing the help from manufacturers, dealers and agents to provide better deals to the customers.
The Manufacturer’s Role
There is tremendous amount of competition amongst the car manufacturers who will always wish to push up their sales in whatever manner they want. As a step in this direction most of the manufacturers collaborate with leading financiers who have nationwide presence. The manufacturers provide financial incentives to these lending agencies for providing loans to customers opting for their products. This incentive in turn is passed on the customer through the financiers at the ground level.
The Dealer’s Role
Apart from the financial benefit that customer gets in a car loan from the manufacturer the dealers can also make a significant contribution. Dealers want increase the sales through their outlet and who go to some lengths in attracting more and more customers. There are incentives that the dealers get from the manufacturers as a reward for meeting sales targets. At times the dealers offer these to the customers as lure for attracting more numbers. These benefits can either be in form cash discount, free accessories etc.
The Agent’s Role
The agents are people who negotiate with the dealers and banks on behalf of the customer to get the best possible deal and then help the customer through the documentation process in a car loan. These agents receive commissions from the dealers as well as the banks in form of standard cuts and performance linked bonus depending on their achieving the target sales figures. Many agents today prefer to go for volumes by letting some of their earnings as commission go to the customers in an attempt to have more number of customers processed for car loans through them.
It is for the customer to understand this process and thereafter bargain hard with the agent, dealer and the banks to squeeze the best possible deal which shall earn savings in the long run.